Option Investor

Daily Newsletter, Sunday, 01/07/2001

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The Option Investor Newsletter                   Sunday 01-07-2001
Copyright 2001, All rights reserved.                        1 of 5
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         WE 1-5         WE 12-29         WE 12-22         WE 12-15
DOW    10662.01 -124.84 10786.85 +151.29 10635.56 +200.60  -277.95
Nasdaq  2407.65 - 62.87  2470.52 - 46.50  2517.02 -136.25  -264.16
S&P-100  681.71 -  4.74   686.45 +  2.22   684.23 -  5.25  - 37.58
S&P-500 1298.35 - 21.93  1320.28 + 14.33  1305.95 -  6.20  - 57.74
W5000  11872.50 -294.50 12167.00 +185.50 11981.50 -112.40  -572.60
RUT      463.14 - 20.39   483.53 + 20.54   462.99 +  4.96  - 21.04
TRAN    3113.99 +167.39  2946.60 + 96.67  2849.93 +151.25  -181.27
VIX       32.03 +  1.80    30.23 -  1.29    31.52 +   .32  +  5.07
Put/Call    .63              .67              .61              .94

Russia, Japan, Banks and the Fed, Have we been here before?
By Jim Brown

Just when traders felt it was safe to go back in the markets the
investing climate took a serious hit. Beginning with a ghost from
the past, Russia announced that it would not make the first quarter
debt payment to a group of nations called the Paris Club which
includes the United States. Russia said it was not a "declaration
of default" but whatever you call it the results are the same. The
debt is over $48 billion and the interest payment for the quarter
is over $1.5 billion. This is not a material event in itself but
raises questions about their future economic liquidity. They have
defaulted on this debt twice in the past in 1991 and 1998. Another
major pre-market problem was a rumor that Bank of America had
suffered significant trading losses and/or material credit quality
issues. The stock did not open for trading until 10:30 after BAC
asked the exchange to halt the stock until they could put out a
press release rebutting the rumors. They did issue the release
saying things were fine and affirming estimates for the year but
the damage had already been done. BAC dropped about -$5 but the
impact to other financial stocks as investors fled in defense was
more of a problem with Dow component JPM losing over -$3. Japan
became a problem once again as the Yen lost ground closing at
116.56 Yen to the dollar. Investors in Japan have been pulling
out of stocks with the Nikkei falling in tandem with the Nasdaq.
Business bankruptcies, restructuring and slowing corporate
spending are taking a toll on their fragile economic recovery.
Analysts are worried that Japan is on the verge of another period
of volatility with non-performing assets at banks mounting again.
The Japanese central bank cannot rescue their economy like our
Fed since interest rates are barely above zero already. Sounds
like a great way to start a trading day!

Is the Fed honeymoon over or are investors worried that the Fed
knows something really scary that we don't? Many analysts were
blaming Friday's drop on the worry that the Fed had reacted so
quickly and drastically that there must be something on the horizon
that we have not seen yet. With every new news event Friday they
tried to point to it as a possible factor but there was no smoking
gun. The Jobs Report was benign with only +105,000 new jobs and
4.0% unemployment. Analysts were expecting a real disaster after
the unexpected rate cut and the benign report was a surprise. They
then pointed to the energy problem in California and the rumor of
BAC losing billions in trading energy derivatives as the hidden
reason. When BAC denied the rumor and affirmed estimates that
balloon burst. With no obvious scapegoat event, traders were
looking behind every news article for the "hidden" reason. The
Russian default, the weakening Japanese Yen, even the weakness
in the Mexican economy and possible impact of a U.S. recession
was mentioned. The bullish sentiment from Wednesday has
evaporated and severe pessimism has returned.

Give those boys and girls a tranquilizer, please! Yes, the Jobs
report was benign on the surface. Only +105,000 new jobs but
half (56K) of those jobs were government jobs leaving only
+49,000 private sector jobs. Now factor in the 133,000 layoffs
announced in December which have not yet taken effect and you
have a good chance for negative job growth in January. The number
of layoffs announced in December was an eight year high. The
problem with the headline number was that it was just not bearish
enough to justify the -.50% rate cut inter-meeting. However, it
was still a market friendly report. The economy is still slowing
and the manufacturing numbers show the sector to already be in
a recession and getting worse AND fairly broad based. About the
only strong points were financial services, transportation and

The energy problem in California is now bleeding over into other
states and impacting the market. Possible bankruptcies by the
leading energy suppliers are putting pressure on banks which
have loaned money to the utility companies. Huge layoffs have
been announced in an effort to stop the bleeding. The rising
energy costs and losses are expected to filter through the
entire industry since many of these companies cover multiple
states. Losses in California could be felt in higher rates
in other states. Traders feel that the government relief in
California was insufficient and will only delay the eventual
bankruptcies of several huge energy companies and that is
undermining the market. Many think this was a factor in
Greenspan's decision. I think the problem is serious but I
also think they are grasping at straws.

I am more concerned with the huge outflows of cash from equity
funds. With the expectation of a market bounce after the rate
cut, and another cut almost a sure thing three weeks from now,
why did $13 billion in cash flow out of stock funds in the week
ended on Wednesday? I justify the number as Christmas bills,
year end spending, taxes and the fact that the Nasdaq hit a
new 52-week low on Wednesday morning. That low was before the
rate cut and before any money transfer decisions could have
been made as a result of the cut. Pessimism was very negative
and investors were shuffling funds to start the new year.
Sounds logical to me but it is my daydream.

If you read my commentary on Thursday you know that I think
the .50% rate cut was a message to Bush. I don't think it was
related to any "hidden" disaster like the Long Term Capital
problem or any global currency problem. Maybe the market drop
on Friday was just the last gasp of the tax selling before
the historical January rally start next week. I think if you
take into account that tax selling, another flurry of a dozen
or so earnings warnings, several high profile downgrades, the
huge BAC rumor, the Russian debt default and the persistent
CSCO earnings warning rumor you have a very good reason not
to hold over the weekend. Traders simply decided that
discretion was the better part of valor and they went home
flat. Compared to Wednesday and Thursday the volume was
positively wimpy. After turning in a two billion share day
on Thursday the NYSE only managed 1.4 billion. The Nasdaq
volume dropped by one third from 3 bil on Wednesday to barely
2 bil. on Friday. There was no huge rush to the exits.
Down volume however did swamp up volume by 2:1 on the NYSE
and 5:1 on the Nasdaq. That does concern me but at -250 on
the Dow and -159 on the Nasdaq you would expect it to be

The earnings warnings are almost over but you could not tell
from Friday. Delta warned that weather and pilots had forced
the cancellation of 7500 flights and earnings would drop
drastically. Tech stocks FCS, IOM, NXTV, CMTN and NEON
all warned as well as GDT, MNY and BGP. BAC downgraded AMCC
from a target of $160 to only $120 and AMCC lost -$10.
Lehman downgraded SAPE, NXTV, AA and MMM saying Dow component
MMM was fully valued. 3M lost -3.50. Robertson Stephens cut
estimates on Wal-Mart but Prudential raised estimates. UBS
Warburg and Goldman Sachs downgraded estimates for Hewlett
Packard. CSFB cut IBI to hold from neutral and LTD to hold
from buy. With only one week left in warnings season traders
are hoping the big caps everybody has been dreading, IBM,
CSCO, JDSU, etc, are not going to warn. IBM was actually up
on Friday as investors breathe a little easier the closer
we get to the actual earnings date. Investors in PVN and
COF got hit with a downgrade from Morgan Stanley on fears
that a hard landing would impact repayments and increase
bankruptcies by credit card holders. Several analysts
rushed to their defense pointing to their excellent
track record during previous down turns. Both stocks lost
but PVN took the biggest hit at -4.50. Much of the Nasdaq
loss Friday was due to CSCO which lost -12% or -$5.25 on
continued fear of a pending earnings warning. They announce
a month later than most other companies, Feb-6th, so they
are just now approaching their warnings period. The rumors
were very specific that CSCO would warn after Friday's close.
Since they didn't those rumors will probably shift into next
week. It is doubtful they will go away.

Pessimism to irrational exuberance and back to extreme
pessimism in only three days. Dizzy yet? Got your motion
sickness pills ready? While it would have been nice to
believe the massive record setting rally on Wednesday was
a result of millions of buyers rushing into the market on
the news of the rate cut, it appears it was simply a mad
panic by shorts covering after being blindsided by the
Fed. Still, I believe it is immaterial. Over the last 12
years the first week of January has normally been flat or
down. 1999 was the exception with the S&P rising +3.7%.
In 2000 the S&P dropped -6% in the first four days before
rebounding. The true test will come on Monday. Historically
a rally day but we may be held hostage by speculation and
worries about earnings. There are no material economic
reports on Monday or Tuesday so the focus will be on news
from the weekend and any earnings stories from next week.
Wednesday we will see Wholesale Inventories, Thursday
Import/Export prices and Friday the PPI and Retail Sales.
Earnings will start to trickle out and hopefully a brighter
outlook for the first quarter. Companies will be giving
guidance for coming quarters and First Call is projecting
only a +4% growth rate. If the guidance from the early
announcers is higher then investors will start to feel
more confident that a recession has been avoided.
Conversely if the outlook is negative then the market
may tend to trade down until the outlook improves.

With a slow earnings week and dwindling warnings the hope
will be for a bounce from the current oversold conditions
on positive investor expectations. Any negative news that
blunts this expectation could void a repeat of the week
as a historical rally. The Dow has given back almost all
the gains from the short covering rally on Wednesday and the
Nasdaq has lost over half. The Nasdaq came to a screeching
halt at 2400 in the last hour of trading on Friday. This
is -235 points from Thursday's high and +156 points from
Wednesdays low. Volatility anyone? At this point 2400 is
only psychological and offers no real support. Still the
Fed is on our side. Even if we retest 2300 again on Monday
there is very strong sentiment that the 2300 area is the
bottom and we should trade up from there. There are no
guarantees in life but once the Fed starts cutting rates
the market normally goes up. Mutual funds cannot make money
by sitting on the sidelines and they will have to eventually
buy stocks. Our task next week is to look for these buyers
coming into the market on heavy volume and then join them.
I am more cautious today than I was on Thursday night after
only a minor drop on the Nasdaq of -2% following the +17%
jump. The drop on Friday could have just been further profit
taking prompted by all the negative factors I mentioned
above BUT as traders we need to go with the trend not try
to force our bias on the market. My bias may be up BUT
until the market reverses to the upside I will lose money
just like everyone else that buys too soon.

The Fed gave us a present yet traders are treating it
like a bomb squad would treat an unattended suitcase in
an airport. Until somebody opens it and finds only a
message to Bush the buyers may not come out of hiding.
My suggestion is to wait patiently and see what the market
gives us on Monday. Treat any rally as a trading rally and
keep your stops close to avoid giving back your profits.

Trade smart, enter passively, exit aggressively!

Jim Brown

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Lucky, not good.

Sometimes you think everything has lined up just right and
once you get all your positions open the bottom falls out.
Other days a play that was an after thought doubles on no
news. Until Wednesday the only luck I have had recently has
been bad luck.

To make a long story short, I bought the dip on Tuesday
morning around 11:am when it looked like we bounced at 2325
on the Nasdaq. I watch the plays until after 1:PM and then
left for some meetings out of the office. No, I did not place
any stops because the market was moving up nicely. When I
returned around the close the Nasdaq was back down to 2275
and looking grim. I considered closing all the plays for
a loss in the last five minutes but just as I got my account
up on the screen a green candle appeared on the Nasdaq. My
bullish bias got the best of me and I held overnight.

Lucky, not good!

The gap down the next morning was followed immediately by
an uptick so I was patting myself on the back for not closing.
I left for meetings again confident that we were headed up.
Wrong idea. The Nasdaq, as reported to me by my car radio,
headed right back down to 2275 again. Cussing myself for
not placing stops again I went into my 1:PM meeting
depressed and fearing the worst. Eric, who was scheduled
to write the wrap on Wednesday called me after the close
and asked me if I wanted to write the wrap instead. I was
confused as to why he would ask since he was on the schedule
and said so. He told me about the rate cut and the big gains.
I was as shocked as everyone but very happy that my luck had
changed. Had I been in front of my PC I would have undoubtedly
closed my positions when the Nasdaq rolled over Wednesday
morning. That would have been an expensive decision. Lucky
helps once in a great while!

Because of the volatility of the markets I had purchased
calls instead of my normal put selling strategy. Calls have
less volatility than deep in the money puts. The puts have
almost a 100% delta which means a $1 move in the stock
creates a $1 move in the option price UP or DOWN. With
the stock charts looking more like an EKG than a trend I
did not want to get scared out with the huge intraday

The stocks I was long were:

BRCM - JAN-90 Calls
CIEN - JAN-70 Calls
EMLX - JAN-80 Calls
JNPR - JAN-110Calls
QLGC - JAN-70 Calls
SUNW - JAN-20 Calls
ESRX - JAN-95 Calls

The top six were big winners with some of the stocks up over
+$20 on the Wednesday bounce. ESRX headed south at a high
rate of speed with money fleeing the biotechs and drug stocks.

I closed ESRX for a 50% loss on Thursday. I wish I had closed
the others as well. Since I was up so much with most of them
up almost 100%, I elected to watch and see if the Nasdaq was
going to hold. It struggled all day but the individual stocks
only slipped $4 or $5 by late afternoon and considering the
gains on Wednesday I felt that was acceptable. My bullish bias
was still clouding my vision.

You already know what happened. It always happens this way.
When stocks are not going up after 3:PM the alternative is
not pretty. After 3:PM on Thursday the selling intensified
slightly. This means I am down -$4 on a stock and at -$5
you think, "I will give it one more dollar then close." Now
at -$6, "just one more dollar, there is only 20 min to close,
we will probably get a bounce at the bell." This is the kiss
of death and some of us never learn the lesson. So they all
closed down -$5 or -$6 and well off the highs of the day.
Still profitable but inaction has cost me plenty.

Without even looking at a chart you know what happened on
Friday morning. Jobs Report, Bank of America, CSCO, etc.
Gap down and now half of my windfall profits from the
Wednesday bounce are gone. Half, and we are talking a lot
of money. Every time I fail to "sell too soon" it always
comes back to bite me.


My game plan for next week is wait for a trend to develop.
Sentiment is up for next week based on the historical trend
but a CSCO warning could punch a hole in that very quickly.
If we get a dip to 2300 with a bounce, I would buy the bounce.
Many analysts are now saying 2200, 2100 and even 2000 as the
next low point. It could easily happen with any negative
news. The market is very scared and this wall of worry is
proving difficult to climb. So, I plan on waiting for a sign.
That sign could be a bounce from somewhere below 2400 or a
rally above 2400 on strong volume. Either could signal a
trading rally which I would buy. Notice I said "trading
rally." Until we have a firm trend in place I plan on
taking profits whenever available and simply waiting on
the next entry point. It is safer and much less stressful.

I plan on entering the exact same stocks as I played last
week. I think they are the current leaders of the fast
mover crowd. Until new leaders emerge they will be my picks.

Good Luck,

Trade smart, enter passively, exit aggressively!

Jim Brown

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That's It?
By Austin Passamonte

The long-awaited rally was a powerful one. Prices soared several
hundred points in the major indexes straight up their charts.
Only thing was, it happened within fifteen minute's time on
Wednesday before anyone not holding long calls could react. Now

Well, we sold off two straight sessions afterwards and it may not
be over with yet. If a .50 basis-point cut before we expected and
another .50 point cut factored as 98% probability by Fed-Fund
futures for Jan 30th won't rally these markets, what will?

Time. Time heals all wounds... even the cavernous pit we call
2001 quarterly earnings that stares us in the face. The abyss
lies dead ahead with a few slippery trails off the side rumored
to exist. Those trails are called JDSU and CSCO falls. A foul
weather warning by either could plunge our packhorses straight
down to places man hasn't seen in quite some time.

Despite all fundamental news, technical analysis continues to
prevail. While all pundits on Wednesday were certain the Dow was
headed to new market highs, time proved it to hit impenetrable
overhead on a classic double-top and now we see bearish
divergence setting up again. 10,370 area could be a next stop on
the way down.

Guaranteed plunge? Not at all, but better than 50% odds in our
opinion. That's all we can ask for as traders.

The NASDAQ-100 always leads the COMPX and once again it's leading
down. Failure at the 20-DMA (2512 red line) and reversing MACD
tell us that 2,040 area is next stop for "firm" support.

Guaranteed? No again, but it is the high-odds bet. This channel
has held four-plus months and counting now, and it will take
strong fundamentals to break out above resistance.

Record volume that swamped the markets for two days served to
cover shorts and rotate some sectors around. Should we consider
Thursday & Friday mere profit taking? Boy, those sure were some
awesome profits if that's the case!

Remember the bubble of 1999? It partially driven due to companies
posting solid earnings and later on the mere promise of earnings.
Those days lie ahead of us again as well, but not this quarter
and for many companies by their own confession, not at all in
2001. So where's the rush for investors to jump in?

The VIX below 33.00 is no cause for contrarian glee just yet. It
needs to go above 36.00 before screaming rally to us. Not that a
rally cannot emerge on Monday because it could. Just don't see it
in the cards from here.

We full-well realize numerous diehard bulls shook off cobwebs
Wednesday afternoon, fired up the computers and renewed their
subscriptions to certain exceptional websites (!) all ready to
buy calls on every symbol sporting four letters. Just like the
old days. Unfortunately for them, any old days we see around here
could be more like late 2000 rather than late 1999.

Anything can certainly happen and that's why we play the game.
However, there is always a likelihood. Always high-odds. In this
case that seems to be testing recent lows once again. Trade the
trend and manage your account wisely!


Friday 01/05 close: 32.03

30-yr Bonds
Friday 01/05 close: 5.44%

Support/Resistance Indicator
The Index Support/Resistance(S/R)Ratio is a formula used to
gauge possible support or resistance based on open-interest
disparity. Ratio listed is percentage of calls to puts or
puts to calls respectively.

Support is factored from dividing puts by calls at strike
levels beneath index closing price. Resistance is factored
from dividing calls by puts at strike levels above current
closing price.

  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
720 - 705               11,575        4,602         2.52
700 - 685                9,901        8,272         1.20

OEX close: 681.71

675 - 660                3,135        8,204         2.62
655 - 640                  200        8,678        43.39

Maximum calls: 700/5,473
Maximum puts : 640/5,395

Moving Averages
 10 DMA  682
 20 DMA  697
 50 DMA  714
200 DMA  768

NASDAQ 100 Index (NDX/QQQ)
 66 - 64                74,288        25,203         2.95
 63 - 61                54,311        38,324         1.42
 60 - 58                71,173        48,658         1.46

QQQ(NDX)close: 56.62


 55 - 53                10,799        24,135         2.23
 52 - 50                 6,210        22,048         3.55
 49 - 47                 3,883        11,896         3.06

Maximum calls: 60/63,379
Maximum puts : 60/37,699

Moving Averages
 10 DMA 58
 20 DMA 62
 50 DMA 69
200 DMA 86

S&P 500 (SPX)
1375                   10,791        10,551          1.02
1350                   40,538        33,441          1.21
1325                    6,562        12,539           .52

SPX close: 1298.35

1275                      413        12,468         30.19
1250                    1,351        12,493          9.25
1225                      129        13,941        108.07

Maximum calls: 1350/40,538
Maximum puts : 1350/33,441

Moving Averages
 10 DMA 1307
 20 DMA 1326
 50 DMA 1355
200 DMA 1431


CBOT Commitment Of Traders Report: Friday 01/05
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs are not.
Extreme divergence between each signals a possible market turn in
favor of the commercial trader's direction.

                     Small Specs             Commercials
DJIA futures     (Current) (Previous)    (Current) (Previous)
Open Interest
Net Value         -2008       -818         -2167     -2589
Total Open
interest %       (-25.35%)  (-12.51%)    (-9.59%)   (-11.60%)
                 net-short  net-short    net-short  net-short

Open Interest
Net Value         -1028      +1428         -1825     -2569
Total Open
Interest %       (-4.77%)   (+8.65%)     (-3.45%)    (-4.43%)
                 net-short  net-long     net-short   net-short

S&P 500
Open Interest
Net Value        +59586     +67807        -81851     -85776
Total Open
Interest %      (+29.89%)   (+38.16%)    (-11.09%)   (-11.94%)
                net-long    net-long     net-short   net-short

What COT Data Tells Us
Indices: The Commercials show a minimal decrease in their net-
short positions on the DJIA, NASDAQ 100, and the S&P 500
Small Specs show a dramatic increase their net-short positions on
the DJIA.

Interest Rates: Commercials are still moderately short T-Bond and
T-Note futures. (Bearish)

Currencies: Commercials heavily short Euro futures while small
specs build net long. Small specs are betting on interest rate
reduction while commercials remain skeptical. (Bearish)

Energies: Commercials are net-short all oil products. These
producers are hedgers and almost always take the opposite side of
expected market action to lock-in production prices. (Bullish)

Metals: Commercials are moving from net-long towards neutral in
Gold, could be under distribution. Silver, Copper and Platinum
are net-short. (Mixed to Bearish)

Data compiled as of Tuesday 12/26 by the CFTC.


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Times Are Tough
By Eric Utley

Doc Greenspan's surprise last week was welcomed.  But the
subsequent sell-off in the major market averages reinforced just
how difficult this tape is to trade.

Now we know for a fact that the Fed is on the attack and interest
rates are coming down.  And that's why I maintain that our
readers should stick with what's been working in the forms of
financials, retailers and cyclicals.  That is, our readers who
only trade/invest from the long side.  I'll continue to pound
the table on the aforementioned groups of stocks for the next six
months as they are likely to outperform.

What we don't know is how the tech sector (Nasdaq) is going to
receive the upcoming rate cuts.  There's a heated debate taking
place in the market about how long the looming rate cuts will
take to filter into the tech sector.  And as long as that
debate takes place, tech will be a difficult area to game.
Nonetheless, I have included several charts in this weekend's
column of tech stocks that may or may not have reached the
bottom and may be good long-term investments - the operative
words are investment and long-term.

Send your stock requests to Contact Support.
Please put the symbol of your requests in the subject line of
the e-mail.


Lookin' For The Bottom With Bull Call Spreads

I really enjoy your Ask the Analyst Column. Following this
newsletter in 1999 and early 2000, I ran my six digit account
into seven digit.  Hats-off to your service! I'm a full time
speculator now. For past eight months, I've been reluctant to
trade with all my capital. I've started to enter bull call
spreads on NOK, GLW, TXN, ADI, WCOM and BBY using their Jan 2003
leaps.  Please review these names and comment if these names will
likely outperform the next bull market.  Also, please name a few
likely winners that I may consider entering in this clearance
sale in tech stocks.  Thanks in advance. - Sanjay

The loyal readers of this column had the pleasure of reading
about Sanjay's successful endeavors into the stock market in
last week's Ask the Analyst.  If you didn't get a chance to read
it, I highly suggest reviewing last week's column for its
motivational tone, if nothing else.

After writing of Sanjay's successes last week, I promised to cover
some of his bull call spread candidates and their likelihood of
outperforming in the next bull market.  So let us get to work!

For readers familiar with bull call spreads, you may want to skip
the following description and pickup below the CBOE link.  But
for those readers new to options, let's quickly define a bull
call spread.  A bull call spread, like the name suggests, is a
bullish options strategy.  The spread is completed by purchasing
a lower strike call while simultaneously selling a higher strike
call on the same underlying security and typically in the same
month of expiration - there are many variations to this
strategy by way of volatility and ratios among other adjustments.
The risk of the bull call spread is the debit for the lower strike
call purchased minus the credit from the higher strike call sold.
The potential profit from this strategy is the difference between
strike prices minus the debit paid.  Here's an example where a
trader might be bullish on shares of Cisco Systems and expect the
stock to advance above $50 by July 2001:

BUY  CALL JUL-45 @ $5.13
SELL CALL JUL-50 @ $3.25

The capital outlay (risk) is $5.13 - $3.25 or $1.88 - that's the
most the trader could lose.  While the potential profit, if CSCO
trades above $50 by July expiration, is the difference in strike
prices (50 - 45 = 5) minus the total debit of $1.88 or $3.13.  In
short, the risk is $1.88 while the potential reward is $3.13 -
remember that shares of Cisco HAVE to settle above $50 by July
expiration in order to reap the $3.13 profit.  For more
information on options strategies, readers may want to check out
the CBOE's option education center at the following link:


Now let us get back to Sanjay's requests.  The majority of Sanjay's
request are tech stocks and I still maintain that tech is a dicey
place to put money to work over the next six to nine months.  But
with a time horizon out to 2003, the risk profile does change with
names such as Nokia, Corning and Texas Instruments.  So let's take
a look at some those names and their charts.

Nokia - NOK

Shares of Nokia traced a massive inverse head-and-shoulders over
the course of last fall, which is a technical pattern that is
indicative of a bottom.  The stock is now consolidating between
the $40 and $45 levels, but just can't seem to get above the
latter.  And I think NOK's inability to get above the $45
resistance level stems from the sluggish tech sector - the Nasdaq
is holding it back.  The big spike up on the chart in early
December was a result of Nokia's bullish comments regarding an
up-tick in the handset business, which is the bread and butter of
Nokia.  I think Nokia's comments of the handset business improving
was a very bullish development for its shares and should help to
boost them higher once the broader tech sector truly regains its
footing.  And, to reiterate, I don't think that will happen for
at least another six months.  But looking out two or three years,
I would suspect Nokia to outperform the broader market once
institutional investors return to tech.  Nokia is the leader in
the handset space and that market is still growing.  My girlfriend,
Sadie, gave me a Web-enabled cell phone for Christmas and I love it
and can't imagine being without one now!

Corning - GLW

The readers of this column should know, by now, that I love the
fiber optic sector looking out four or five years.  At the risk
of boring our readers, I must reiterate that the optical network
is a long way off from being completed.  And as the premier
optical cable provider, I would think Corning has many bright
years ahead of it.  For that reason, I would expect shares of
Corning to outperform during the next bull market in tech stocks.
But to reiterate my stance on tech, it's still dicey and shares of
Corning reflect my view.  The stock was a momentum fund manager's
dream for nearly two years but that mo-mo buying created excesses
in Corning's share price and, I think, those excesses have not yet
been removed.  Just look at the miserable downtrend on Corning's
chart.  I would like to write that shares of Corning have
hit bottom at the $50 level, but I just don't think that's the
case.  In fact, I wouldn't be surprised to see the stock visit $40,
which is a significant historical support level.  You'll notice
on Corning's chart that the stock really hasn't spent a significant
amount of time basing at a support level.  Last fall, it looked
like GLW may had finally based at the $60 support level, but that
support gave way in mid-December and now it looks like $50 is the
key level.  Instead of trying to pick the very bottom, I think it
is more prudent to wait, and wait, for a base to build such as the
ones in shares of Nokia and even Texas Instruments, which we'll
review next.  It takes a lot of time to build a base from which
to rally and shares of Corning have not spent very much time
basing at the $50 level.

Texas Instruments - TXN

Texas Instruments (TI) is obviously tied to the cycles in the
semiconductor sector.  And as we all know, the chip business has
been contracting for quite some time.  But unlike shares of
Corning, shares of TI have been consolidating around a historical
support level for three months now.  The stock has been trading
in a ten point range between support at $40 and resistance at $50.
This basing pattern may portend a stabilization in the chip
sector and ultimately an up-tick in the semi business in the
coming months.  My only concern with shares of TI and the broader
chip sector right here is that we've only witnessed a temporary
consolidation and protracted short covering.  I went back on a
historical chart to 1995 - the last major downturn in the chip
sector - and noticed that shares of TI sold-off in a big wave,
consolidated for four months, then sold-off again to lower
lows.  So with TI, and its crosscurrents, I would think it
prudent to wait for a significant up-tick in the semi sector,
which can be measured by the SOX.X.

Best Buy - BBY

Of all of Sanjay's requests, my favorite, in the near-term, is
Best Buy.  I've never visited a Best Buy store, so to be quite
frank, I don't know a lot about the company.  Of course I know
they are an electronics retailer and that is the operative
idea here - they're a retailer.  And retailers work in a
friendlier interest rate environment.  There may be better
opportunities in the retail sector than Best Buy, but for no
other reason than the friendly Fed, I would expect its shares
and its sector to outperform over the next six to nine months.
But the key here with the retailers and other interest rate
sensitive sectors is to wait for pullbacks to gain entry into
long positions as they have already advanced substantially
over the last month, or so.  And although I preached
consolidation around support levels (with time) for the
above reviews, I do think a V-bottom is a possibility for
shares of Best Buy in light of the lower interest rates


Portal Software - PRSF

Would appreciate your opinion on PRSF.  Thanks for your great
job. - Igor

Thank you for the compliment, Igor.

Portal Software provides services, such as billing and customer
management, to telecom companies.  And the telecom business has
been the pits.  The reduction in capital spending by major
telecoms was evident in Portal's last quarterly report in late
November.  The firm actually beat its EPS estimates but fell
short of the revenue number.  The company reported revenues of
$72 million, but had guided analysts to expect $80 million.
That sales shortfall caused a precipitous sell-off in its
shares along with serious technical and psychological damage.
If you're long shares of Portal, Igor, I wish I had something
better to write, but I don't.  The telecom business is still
dicey and that will directly impact Portal's sales going
forward.  And its chart doesn't look good from any perspective.


Analog Devices - ADI, Motorola - MOT

I just like to say thank you so much for your great stock
evaluations over the past year.  Although, I am down
substantially since last year, I am looking into 2001 but
being more selective about my stocks.

ADI seems to have had a great 3rd quarter earnings and has still
been hurt somewhat by market this year.  ADI seems to be trading
into a more and more narrow trading range between $45-$65 but
looks poised for a breakout in the next week or two.  Also there
are a few small gaps around $70 and $77.  Should we just ignore
these gaps since it was so long ago, or use them to help
establish support and resistance levels.  Do gaps like these
usually get filled - like in the case of the Nasdaq, gaps
ALWAYS seem to get filled. - Sincerely, Brian

Thanks for taking the time and effort in writing in, Brian!

Shares of Analog Devices have been hurt in recent months and
that has everything to do with the downturn in the chip
sector and the market's perception of future earnings.  Although
ADI reported a solid quarter last time around, the market is
looking forward and concerned the company won't be able to
sustain its historical earnings record.

I also see your observation of a narrowing trading range, Brian.
And ADI's narrowing trading is somewhat interesting at this
juncture as related to my ideas in Texas Instruments, which I
reviewed above.  If the shorts are merely bringing in stock in
the chip sector right now, it makes sense that ADI hasn't fallen
below its near-term lows, yet has been unable to break above
its descending trend line.  Judging by many individual charts in
the chip sector, I would speculate that we're at a critical
juncture in that group, where lower prices may be in store or,
on the other hand, the bottom may have been reached and these
stocks are ready to breakout above their descending trend lines.
As for ADI's gaps around $70 and $77, I think they're
inconsequential at this point in the trend.  But that's just my

MOT seems the worst is over for this stock.  Last month the
earnings warning did almost nothing to the stock.  The stock
just traded under $16 (down $2) briefly, then has since been in
a short-term positive trend line.  Is this a good sign of a
bottom - bad news is no longer hurting the stock price?

Motorola is very diversified firm with dealings in handsets,
pagers, network systems and semiconductors.  And if the
handset business continues to improve, as I suggested with
the review in Nokia, shares of Motorola should trade higher in
the next year or two.  And as you alluded, Brian, Motorola
warned last month and the stock actually has traded higher.
That is a bullish sign!


This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


For the week of January 8, 2000

Consumer Credit         Nov  Forecast:  $8.0B   Previous:  $16.7B

Richmond Fed Survey     Dec  Forecast:    NA    Previous:   -2.0

Oil & Gas Inventories 5-Jan  Forecast:    NA    Previous: 288.7MB
Wholesale Inventories   Nov  Forecast:  0.30%   Previous:   0.30%

Initial Claims        6-Jan  Forecast:    NA    Previous:    375K
Export Prices ex-ag.    Dec  Forecast:    NA    Previous:  -0.10%
Import Prices ex-oil    Dec  Forecast:    NA    Previous:  -0.10%

PPI                     Dec  Forecast:  0.10%   Previous:   0.10%
Core PPI                Dec  Forecast:  0.10%   Previous:   0.00%
Retail Sales            Dec  Forecast:  0.00%   Previous:  -0.40%
Retail Sales ex-auto    Dec  Forecast:  0.30%   Previous:   0.20%
ECRI Wkly Index       5-Jan  Forecast:    NA    Previous:    5.3%

Week of January 15th
Jan 16  Business Inventories
Jan 17  CPI
Jan 17  Core CPI
Jan 17  Industrial Production
Jan 17  Capacity Utilization
Jan 18  Initial Claims
Jan 18  Housing Starts
Jan 18  Building Permits
Jan 18  Philadelphia Fed
Jan 19  Trade Balance
Jan 19  Mich Sentiment-Prel.

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The Option Investor Newsletter                   Sunday 01-07-2001
Sunday                                                      2 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:


New Year's Resolutions: Collar Your Stocks
By Lynda Schuepp

Just before Christmas I told you about two of the stocks from my
Christmas List- they are SEBL and ITWO.  I bought ITWO for $45,
sold January 50 calls for $7.38 and bought SEBL for $61 and sold
the 70 calls for $9.  A lot of people think that the covered call
strategy is conservative and quite boring.  I'll tell you what
fun I had and a refinement to the strategy that I should have done.

ITWO and SEBL are very volatile stocks.  My intent was to hold the
stock until expiration and make a total of 30 points by getting
called out of the stocks.  My assumption was that the market had
bottomed and we were going straight up from there.  I really didn't
expect quite as much fluctuation in the price as I saw.

From the chart above, you can see that ITWO went from $45 (my entry)
down to $39 on Tuesday, January 2nd. I thought this was a bottom so
I bought back my calls at $4.63 for a $2.75 profit.  The SEBL chart
looks quite similar and I did even better on those.  I bought back
those calls for $3.63 or a $5.38 profit.  I look like a genius but
I was really stupid here.  I now owned the stock with no hedge and
was exposed to any downside.  This was particularly dumb for me,
because I was not planning on being around the following morning.
The next morning, which I missed, THANK GOD, ITWO dropped to a low
of $36.80 and SEBL dropped to $49.75.  Had I been around, I would
have been cursing my stupidity and changing my original plan and
also taking a big loss.  The market turned around after the cut in
interest rates.  Thank you Alan.  ITWO closed at 48.5 and SEBL went
to $69.80 by the end of day.  I've said this before, but sometimes
it's better to be lucky than smart.

The next day, I had to pay homage to the market gods.  When the
market did not follow through, I decided to sell the stocks and
take a profit.  I sold ITWO for $47.88 and SEBL for $68.38.  I
made a total of 12.75 points on the stock and the calls.  That
translates to a 17% profit in 2 weeks.  My original plan would
have netted me a maximum profit of 30 points in four weeks, if
all had gone according to plan.

Now for the lesson.  What I should have done is collared my
stocks.  A collar is a short call and a long put.  The goal is for
the short call to pay for the long put.  The long put is nothing
other than a protective put and the short call is simply a covered
call.  As you all know I like to leg into positions.  The
opportunity that I missed was a big one but it taught me a lesson
is risk management.

Let's just look at SEBL.  ITWO would have produced similar results.
I bought SEBL for $61 and sold the 70 calls for 9 points shortly
after the stock rose to $65. This move brought my break-even down
to $54 and my maximum profit would be 18 points.  (Read my last
article if you don't understand how to get to these numbers).
With the stock at $65, I could have purchased a put to protect my
stock in the event that the stock tanked.  The put is an insurance
policy so you don't need to buy more than you need.  Since I bought
the stock at $61 I looked at the 60 strike on the put, which at
the time was selling for about 3 points.

A review of the new risk/reward numbers is in order here.  I had
received 9 points for the call and could have paid 3 points for
the put.  My maximum profit, if SEBL have closed about $70 at
expiration, would have been 15 points.  However, look at the
protection to the downside.  My original position would have been
underwater by a couple of points when SEBL opened at $51.40 on
Wednesday and dropped to $49.75 before turning back around.  Gap
downs are usually filled so when the stock filled the gap and
headed higher, I probably would have sold my put and bought back
my call (had I been around).  The put would have been worth at
least 10 points (strike of 60 less current price of stock at 50).
The short call would have been worth approximate 3 points.  In
this scenario, I would have made 10 points on the put (which only
cost me 3 points) and 6 points on the call that I bought back.
The stock however would be 11 points under water but you would
still be up 5 points on this strategy.  Not bad for a stock that
dropped 11 points since your entry.

You should note that you would only sell the put AND buy back the
call if you were extremely bullish at this point.  The safer play
would have been to buy back the short call and to hold on to the
put for protection.  If the stock continued to drop you would be
protected dollar for dollar with the put and you would already
have made 6 points from buying back the call!  Had you held on to
the put until your stock got back up to the entry price, the put
would still be worth about 6 points.  At that point you could sell
the put and the stock, or sell the put and hold on to the stock
and play this scenario out again.

What is important to understand is that you could have totally
protected yourself and made a very handsome profit if the stock
went up or the stock went down.  It's kind of like heads you win
AND tails you win.  Let's look at this strategy if you simply held
until expiration.  We'll look at 3 scenarios at expiration: the
stock closes at $55, $65 and $75.

Summary of Important numbers:

Stock purchased at $61
60 put bought for $3
70 call sold for $9

At $55, the 70 call option would expire worthless and you would get
to keep the 9 points.  The stock, if sold, would result in a 6 point
loss.  The put could be sold for 5 points.  Total gain = 8 points.

At $65, the 70 call option would expire worthless and you would get
to keep the 9 points.  The stock, if sold, would result in a 4 point
gain.  The put would expire worthless.  Total gain = 13 points.

At $75, the 70 call option would be exercised and you would have to
sell your stock for 70 for a 9 point profit.   You received 9
points for the call but the put would expire worthless.
Total gain = 18 points.

As it turns out, your profit would never be less than 8 points,
and your maximum profit would be 18 points, the same as just
selling the call.  Which would you rather have?

I really missed the boat on this one, so I wrote about it to help
others.  Please protect yourself as much as possible in this market
environment.  Don't try to make up last year's losses all on one
trade.  Wipe the chalkboard clean, start over and build that
portfolio back up, one good trade at a time.  Know your risk/reward
scenarios, before you put on the trade and write down what you will
do if the trade goes well but also write down what you will do if
the trade goes bad and follow your plan.  That's the only hard part
and that's my New Year's resolution.  It's probably harder than
losing 10 pounds.

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Call Play of the Day:

MER - Merrill Lynch & Co., Inc. $71.56 (+3.38 last week)

See details in sector list

Put Play of the Day:

CELG - Celgene Corpation $24.69 (-7.81 last week)

See details in sector list

Why put all your risk into one stock when you can play the
index instead?

Learn how to invest in the OEX, QQQ, and SPX.  Get intraday
market updates, plays, education and daily commentaries by
those who know.

Sign up for a two week free trial and see for yourself at


Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


HRB $40.56 (-0.81) We were encouraged by HRB's big run-up to the
$44 level two Fridays ago and thought that it might lead to higher
prices in the New Year.  As it turns out, HRB pulled back from
that level and has since consolidated around the 10-dma - a site
of support since early December.  That 10-dma may continue to
prop HRB higher in the coming weeks, but for the time being,
we're dropping coverage on the play in search of better
opportunities.  Open positions could be exited on a lift to the
$41 level early next week.  If you choose to hold any positions,
make sure HRB continues to trade above its 10-dma which currently
sits at $39.75.

CIEN $74.00 (-7.25) While volatility was what we were looking
for in our new play on CIEN, we got a bit more of it than we
bargained for on Friday.  Falling right from the open, CIEN
never even gave us a hint of an entry point as it fell
through our stop at $75, ending the week very near the low of
the day.  Even the surprise rate cut Thursday night wasn't
enough to prop up stock prices, and then CIEN's 200-dma was
too much to overcome, making for a quickly broken play.  You
can't win them all, and this is why we provide specific entry
strategies.  Following them kept us out of a play that wasn't
quite ready to be served.


AZA $38.31 (-4.19) We timed our entry into this short play fairly
well early last week, ahead of the Fed's interest rate cut on
Wednesday.  The friendly Fed news spurred a flight of capital
from the defensive names and into the growth areas of the
market.  That shift sent AZA lower, but the very same sector
rotation boosted the stock in Friday's session.  As the broader
market averages sank, investors positioned back into the
defensive names, which gave a lift to AZA.  We fear this
defensive buying may continue and, as a result, are dropping
coverage on AZA this weekend.  Use any weakness early next week
to exit existing positions.


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


UBS - UBS Warburg $173.91 (+10.51 last week)

UBS Warburg is a business group of UBS AG, one of the largest
financial services firms in the world with 78,000 employees in
more than 40 countries. In the United States, UBS Warburg's
securities activities are conducted through UBS Warburg LLC and
PaineWebber Incorporated, U.S.-registered broker-dealers. The
firm is a leader in equities, corporate finance, M&A advisory and
financing, financial structuring, fixed income issuance and
trading, foreign exchange, derivatives and risk management. UBS
Warburg also offers a full range of innovative wealth management
servicesthrough PaineWebber, and provides private equity
financing through UBS Capital.

Ever since bouncing off support at $120 in mid-October, shares of
Swiss financial banking giant UBS have maintained a sustained
advance.  Trading in a range between $135 and $145 in the month
of November, the stock broke out of that channel in December, as
expectations of cuts in interest rates attracted buyers of
Financial issues.  When expectation became reality on Wednesday
and the Fed came through with a 50 basis point ease in borrowing
costs, the stock rallied, as traders rushed into the Financial
sector on volume.  So strong is UBS' upward momentum that it
managed to gain $2.96 or 1.73 percent on Friday, despite weakness
in the market.  At this point, the stock has created a gap
between $165 and $170, which it could likely fill in the near
term.  This would allow traders to enter on a dip on a test of
support at $165.  There is also moving average support from the 5
and 10-dma, currently at $166.64 and $162.89 respectively.  For
downside protection, we are placing a protective stop $165 level,
as a close below this point would suggest a possible break in its
current ascent.  Inexpensive call options despite a high stock
price makes this an attractive way to play the Financial sector,
offering a high degree of leverage.  Nonetheless, entry points
are important so confirm bounces and breakouts with volume and
make sure that sector sympathy is on your side before initiating
a play, using movement in competitors such as BSC, LEH, MWD for

***January contracts expire in two weeks***

BUY CALL JAN-165 UBS-AM OI=66 at $10.20 SL=7.00
BUY CALL JAN-170*UBS-AN OI=20 at $ 6.60 SL=4.50
BUY CALL JAN-175 UBS-AO OI= 0 at $ 3.80 SL=2.50  Wait for OI!!
BUY CALL FEB-170 UBS-BN OI= 0 at $ 9.80 SL=7.00  Wait for OI!!
BUY CALL FEB-175 UBS-BO OI=50 at $ 7.10 SL=5.00


CTXS - Citrix Systems Inc $26.69 (+4.19 last week)

Citrix provides application server products and technologies
that allows networked computers to run Windows-based programs
from a central server, which gives their clients effective and
efficient management of their applications.  Its WinFrame
software is used by well-known companies such as Sears Tire
Centers and Hewlett-Packard Europe.

Once CTXS fell from investors' grace last summer as the result
of MSFT's turmoil, the share price has failed to fully recover
from the devastation.  However, the high-volume move to the
upside of $25 last week offers some optimism of a revival.  The
subsequent break through the 30-dma, near $26, and the undaunted
challenge of the immediate resistance at $28 provides further
technical evidence of an impending breakout.  We're anticipating
the overall rotation into selective techs may carry CTXS higher
next week.  Assuming our speculation is on the money, so to
speak, you'll need to be quick and disciplined.  The company is
reporting earnings on January 17th, after the market; OI will
exit prior to the announcement to avoid any "sell on the news"
incident.  Consider the more conservative approach and look for
viable entries as CTXS rallies through the pivotal $30 level in
an advancing market.  Of course, the less risk-adverse might
find lower entries near the $25 and $26 levels during intraday
dips.  But be very cautious of taking positions near our $23
stop, this type of entry poses great risk; especially when you
consider the erratic behavior of the technology stocks and in
particular, the fickle bias towards many software stocks like
MSFT, AGIL, and BEAS.  Nonetheless, were optimistic of a short-
term run up.  UBS Warburg recently upgraded the stock to a Buy
from a Hold, which also bodes well going forward.

***January contracts expire in two weeks***

BUY CALL JAN-20 XSQ-AD OI=2118 at $7.13 SL=5.00
BUY CALL JAN-25*XSQ-AE OI=9691 at $3.13 SL=1.50
BUY CALL JAN-30 XSQ-AF OI=3085 at $1.06 SL=0.00
BUY CALL FEB-25 XSQ-BE OI=2814 at $4.50 SL=2.75
BUY CALL FEB-30 XSQ-BF OI=1785 at $2.44 SL=1.25


AEOS - American Eagle Outfitters Inc $46.44 (+4.19 last week)

American Eagle Outfitters is a specialty retailer of collegiate-
style casual apparel, accessories and footwear aimed at men and
women ages 16 to 34.  The company's fashion line of relaxed
clothing bears the American Eagle Outfitters and AE brand name
and are sold exclusively in their mall-based stores.  They
currently operate over 550 stores in 47 states and Washington,

Investors launched AEOS to new 52-week highs as the retail
stocks surged after the Fed cut rates on Wednesday.  AEOS is
currently poised to not only surpass Thursday's $51.25, but also
to challenge the all-time record near $60.  From a long-term
perspective, the initial boost to the retail sector may not
necessarily be enough to overcome last year's slowdown in
consumer spending.  Plus recent filings with the SEC indicate
relatively heavy insider selling.  However, our objective is to
lock in short-term gains as AEOS relishes in the present glow of
a positive outlook.  Other clothing retailers who were top
gainers included the Gap (GPS) and Talbots (TLB).  In addition
to a rallying sector, December's same-store sales numbers also
gave AEOS a shot of adrenaline last week.  The company announced
a 11.8% increase in comparison to First Call's consensus
expectation of 3.3%, and an increase for total sales of 45.1% to
$231.8 mln.  Not too shabby in a "slowing economy"!  In regard
to the specifics of this sector play, we have our protective
stop set at relative support of $42.  We're looking for intraday
support to stabilize around the $46 level and present a firm
launching pad for more conservative entry points next week.
Historically, the $50 mark served as a formidable resistance
line; therefore, a definitive move through this level would, of
course, offer more conclusive confirmation that AEOS can make a
charge for $60.

***January contracts expire in two weeks***

BUY CALL JAN-40 AQU-AH OI=333 at $7.25 SL=5.00
BUY CALL JAN-45*AQU-AI OI=320 at $3.63 SL=2.00
BUY CALL JAN-50 AQU-AJ OI= 81 at $1.50 SL=0.75
BUY CALL FEB-45 AQU-BI OI=221 at $6.13 SL=4.00
BUY CALL FEB-50 AQU-BJ OI=526 at $3.88 SL=2.50



ITW - Illinois Tool Works $63.25 (+3.63 last week)

Illinois Tool Works is a $9.3 billion diversified manufacturer
of highly engineered components and industrial systems.  The
company consists of more than 500 decentralized operations in
40 countries, and employs approximately 52,800 people.

Illinois Tool Works formed a bullish wedge pattern for the
last three months, with a low point at $51 on October 27, and
strong resistance at $60.75, which was penetrated this week.
Despite the fact that Illinois Tool Works issued an earnings
warning for next year due to a slowing economy (who hasn't?)
investors are discounting this factor, and looking ahead to
the direct impact of the Federal Reserve's interest rate cuts
on the cyclical stocks.  ITW has been trying to penetrate
its 200-dma for a year, and each time it poked through, it
fell back.  Last week, ITW burst through resistance at the
200-dma of $58.58, and the momentum was strong enough to
break resistance at $62.88, which has been eluding ITW since
May.  ITW's action on Friday afternoon was particularly
bullish, as the stock bounced off the 5-dma of $61 in the
morning, and closed higher in a down market.  A possible
entry point would be a break though resistance of $64.47 on
strong volume, which could lead ITW toward $67.50.  Intraday
support is found at $63, and $62, but set stops at $61.  Pay
attention to the cyclical and capital good sectors (XLY and
IYC)for strength.

***January contracts expire in two weeks***

BUY CALL JAN-60 ITW-AL OI=508 at $4.00 SL=2.50
BUY CALL JAN-65 ITW-AM OI= 27 at $1.00 SL=0.00  High Risk!!
BUY CALL FEB-60 ITW-BL OI=330 at $5.25 SL=3.25
BUY CALL FEB-65*ITW-BM OI= 44 at $2.38 SL=1.50


VC - Visteon Corp. $14.00 (+2.38 last week)

Visteon Corp is a leading full supplier that delivers consumer
driven technology solutions to automotive manufacturers worldwide
and through multiple channels within the global automotive
aftermarket.  Visteon has a global delivery system of more than
130 technical, manufacturing, sales and service facilities
located in 23 countries.  It has 81,000 employees working in
three business segments:  Dynamics and Energy Conversion,
Comfort, Communication and Safety, and Glass.

Visteon hit a 52-week low of $9.75 on December 12, and rebounded
to rest at support of $11.50 last week.  The Fed's interest rate
cut and excellent news released by the company, as well as a
demonstration of new futuristic technologies at the 2001
Consumer Electronics Show this week, pushed VC up past the 50-dma
of $13 to $14, which served as strong support on Friday.
This week, Visteon showcased its futuristic vehicle at the Las
Vegas Electronics show, which includes such features as biometric
identification technology, deformation sensing, and voice
technology, which enables drivers to operate various features
while keeping their hands on the wheel.  This demonstration
sparked buying interest in Visteon, as Thursday's volume was
more than double the average daily volume, and pushed VC up to
$14.75.  Visteon closed at a gap level from Dec 6, which had
previously been unfilled.  As long as Visteon stays above the
50-dma of $13, the stock should remain in bullish territory, and
remain positioned to clear the next resistance levels of $14.44
and $15.  A break over $14.44 on strong volume would be a good
entry point, as well as the current level of $14.  Set stops at

***January contracts expire in two weeks***

BUY CALL JAN-10   VC-AB OI=146 at $4.25 SL=2.75
BUY CALL JAN-12.5 VC-AV OI= 63 at $1.75 SL=1.00
BUY CALL FEB-12.5*VC-BV OI= 51 at $2.13 SL=1.00
BUY CALL FEB-15   VC-BC OI= 11 at $0.81 SL=0.00  High Risk!


PMTC - Parametric Technology $15.44 (+2.00 last week)

Parametric Technology is a leading maker of mechanical
computer-aided design, manufacturing, and engineering software.
Its flagship Pro/ENGINEER 3-D modeling software has been used
by organizations such as Motorola and NASA.  PMTC is moving
beyond its humble beginnings to embrace the Internet; Its
Windchill Factor! software enables collaborative business
processes - from design to supplier sourcing and production -
all from the comfort of the Internet.  The company's software
solutions are complemented by the strength and experience of
its global services organization, which provides training,
consulting, support and e-commerce solutions to customers
through its 200 offices around the world.

After the carnage inflicted on the stock back in April of last
year, shares of PMTC have been on a nice gradual recovery, and
look poised to continue their winning ways.  The spring selloff
was due to an ugly earnings shortfall, but the past two quarters
have both seen the company handily beat estimates, and increase
their revenue growth rate.  The company has had plenty of
positive press in recent weeks (from a successful new product
launch to a $6 million order from the U.S. Department of
Energy), and looks poised to continue its recent earnings
pattern when it releases its numbers on January 16th, before
the opening bell.  Volume has been on the rise recently, hitting
double the ADV on Friday, and driving the price right through
the upper Bollinger band at $15.25.  If the stock's recent
history repeats (which we think it will), PMTC should
consolidate a bit before heading back up to challenge the
now-expanding Bollinger band.  Since this is a low volatility
play, we have placed a tight stop at $14.  Buying intraday dips
to support near $14.50 looks like the best entry strategy.  Just
make sure that the buying volume is strong before jumping into
the play.

***January contracts expire in two weeks***

BUY CALL JAN-15   PMQ-AC OI=15016 at $1.25 SL=0.50
BUY CALL FEB-15   PMQ-BC OI= 9034 at $2.00 SL=1.00
BUY CALL FEB-17.5*PMQ-BW OI=  614 at $0.88 SL=0.00
BUY CALL MAY-17.5 PMQ-EW OI=  371 at $2.13 SL=1.00


PPG - PPG Industries Inc $48.00 (+1.69 last week)

PPG Industries manufactures decorative and protective coatings,
glass products, and also specialty chemicals.  You may be
familiar with their Lucite brand house paint or Olympic stains.
Coatings for architectural, automotive, and industrial uses
account for 50% of the company's revenue while the glass
products represent nearly 30% of sales.  PPG has over
110 manufacturing facilities in 22 countries and about 250
retail paint stores in the US.

If you like to play pure and simple earnings' runs, then PPG
should meet your criteria.  After recovering from the shocking
Fed action on Wednesday, PPG rose to the occasion with a flair.
It experienced a clean technical breakout through the 5-dma
line, at the $46 and $47 levels.  The robust enthusiasm induced
a strong open at $49 on Friday, with a quick peak at $49.19,
before PPG settled in for another day of bullish trading.  The
issue demonstrated strength first above $47 and then, at the
closing price of $48.  The positive promotion from CSFB of a
Strong Buy recommendation also fed into the growing momentum.
Although the chemical industry is likely to be hurt by declining
demand and higher energy prices, the short-term prospect of a
run into earnings looks good.  PPG is scheduled to announce
BEFORE the opening bell on January 18th.  Look for the converged
10 and 200 DMAs at the $45 level to buoy the issue on pullbacks.
A weak close below $45 warrants a hasty exit from the play.
Consider taking entries if PPG continues to successfully trade
above $47 and rallies through the immediate resistance at $49.
But remember, time is of the essence.  Get in and out before the
earnings' release.

***January contracts expire in two weeks***

BUY CALL JAN-40 PPG-AH OI= 97 at $8.38 SL=6.00
BUY CALL JAN-45*PPG-AI OI=396 at $3.75 SL=2.25
BUY CALL FEB-45 PPG-BI OI=144 at $4.50 SL=2.75
BUY CALL FEB-50 PPG-BJ OI=649 at $1.56 SL=0.75
BUY CALL FEB-55 PPG-BK OI=  0 at $1.50 SL=0.75  Wait for OI!!


TBL - The Timberland Co $70.50 (+3.63 last week)

Timberland designs, manufactures, and markets casual footwear,
apparel and accessories for men, women and children around the
world.  Their premium-quality products are engineered for
functional performance, classic styling and lasting protection
from the elements.  It sells its products through high-end
retailers as well as its own specialty stores and factory

A raging retail sector propelled this apparel manufacturer to a
higher level of trading; although, a significant breakout in
late December preempted last week's pivotal move through $70.
In a high-profile interview posted on the Wall Street
Transcript, VP of Social Enterprise of Timberland, Ken Freitas,
reviewed his firm and the sector's future outlook.  His positive
comments and confident views combined with a rising DOW saw TBL
tip the scales at $71 on December 28th.  A period of mild
consolidation ensued in the $65 and $70 range; that is, until
last Wednesday's rate-cut rally!  The strong momentum drove TBL
upward to an all-time high of $74.  Friday's retest of the $65
support level confirmed the stock's ability to maintain the
higher trading levels during times of market adversity -
weakness under $65 clearly signals an exit.  The strong close
near the high of the day further added credence to TBL's overall
strength going into next week.  If you're interested in taking
positions into this sector play, you could target shoot for an
aggressive entry near the $65 support or buy into strength as
TBL moves off the current level ($70).  If you take the latter
approach, make sure the buyers step in first.  High-volume
action above the $74 resistance provides even better
confirmation that TBL is poised to stretch into unknown
territory.  It'll also be important to watch other stocks in the
retail sector, which can provide traders with an overall feel of
how the market is moving.  Some good choices include the #1
retailer Walmart (WMT), American Eagle Outfitters (AEOS), and
the Gap (GPS).

***January contracts expire in two weeks***

BUY CALL JAN-65 TBL-AM OI=1312 at $6.63 SL=4.50
BUY CALL JAN-70*TBL-AN OI=1273 at $3.25 SL-1.50
BUY CALL JAN-75 TBL-AO OI=1305 at $1.38 SL=0.75
BUY CALL FEB-70 TBL-BN OI= 263 at $6.13 SL=4.00
BUY CALL FEB-75 TBL-BO OI=  50 at $4.00 SL=2.50



GE - General Electric Company $47.31 (-2.63 last week)

GE is a diversified services, technology and manufacturing
company with a commitment to achieving customer success and
worldwide leadership in each of its businesses.  GE operates in
more than 100 countries and employs nearly 340,000 people
worldwide, including 197,000 in the United States.  The Company
traces its beginnings to Thomas A. Edison, who established Edison
Electric Light Company in 1878.  In 1892, a merger of Edison
General Electric Company and Thomson-Houston Electric Company
created General Electric Company.  GE is the only company listed
in the Dow Jones Industrial Index today that was also included in
the original index in 1896.

As a highly interest rate-sensitive stock, this play on GE is all
about a friendly Fed and lower interest rates.  With the
likelihood of further interest rate cuts going forward, this
should help GE's earnings, thereby helping its stock price.
While the effects of the interest rate cuts will not be
immediate, the impact of an improving fundamental environment
over the long term should be highly positive, which is why we
recommend call options that go out several months to capture the
maximum upside potential of this play.  Look for pullbacks to
support at the 5-dma (now sitting at $47), $45 and our stop price
at $43 as possible aggressive targets to shoot for, confirming
bounces with buying volume.  For an entry on strength, look for a
break above the 10-dma at $47.75 with conviction.  In both cases,
wait for bullish action in the DOW before initiating a play.

***January contracts expire in two weeks***

BUY CALL JAN-45 GE-AI OI= 3964 at $3.25 SL=1.50
BUY CALL JAN-50 GE-AJ OI=44768 at $0.69 SL=0.00
BUY CALL FEB-45 GE-BI OI=  907 at $4.50 SL=2.75
BUY CALL FEB-50 GE-BJ OI= 4543 at $1.88 SL=1.00
BUY CALL JUN-50*GE-EG OI= 4072 at $4.50 SL=2.75


LU - Lucent Technologies $14.50 (+1.00 last week)

Lucent was formed from the systems and technology units that
were formerly a part of AT&T, including the research and
development capabilities of Bell Laboratories.  The company
designs, develops and manufactures communications systems
software and products, primarily for Telecom providers like
AT&T.  LU is also engaged in the sale of business
communications systems and in the sale of microelectronic
components for communications applications to manufacturers
of communications systems and computers.  The company recently
spun off its enterprise networks business (Avaya) and plans to
spin off its microelectronics unit (Agere Systems).

Oh, how the mighty have fallen!  Once considered a major
competitor in the Telecom equipment/Networking space, LU has
really fallen from grace in the past year.  Of course, what do
you expect after the company has issued 4 consecutive earnings
warnings?  So what is it doing on the call list, you ask?  Well,
given the recent management change, decreasing interest rates,
and the depressed stock price (LU is down more than 80% from
its 52-week high), we think all the bad news is now factored
into the stock and it is poised to recover with the broader
markets.  The stock has been finding support between $12-13 for
the past couple weeks, and it was encouraging to see buyers
appear when the Telecom stocks got a little bump earlier this
week due to the surprise rate cut.  We've got time to be patient
on this one, as it is unlikely to run away from us.  Look for
more consolidation between $13-14 to provide an attractive entry
point, and jump in as the buyers return.  Our stop is placed at
$12, just below the 52-week low; if it is violated, it won't
take long for us to eject LU from the playlist.

BUY CALL FEB-15 ULU-BC OI=7328 at $1.94 SL=1.00
BUY CALL APR-15 ULU-DC OI=3481 at $2.94 SL=1.50
BUY CALL JUL-15*ULU-GC OI=1259 at $3.63 SL=2.00


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The Option Investor Newsletter                   Sunday 01-07-2001
Sunday                                                      3 of 5

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NOK - Nokia $42.31 (-2.25 last week)

Nokia is the world leader in mobile communications.  Backed by
its experience, innovation, user-friendliness and secure
solutions, the company has become the leading supplier of mobile
phones, and a leading supplier of mobile, fixed and IP networks.
By adding mobility to the internet, Nokia creates new
opportunities for companies, and further enriches the daily
lives of people.

Considering the widespread carnage found in the technology
sector Friday, Nokia demonstrated its underlying technical
strength once again.  The low price of the week was $38.94
on Wednesday, before the surprise rate cut was announced.
Nokia immediately bounced up to resistance at $45.  Nokia hit
$45.50 on Thursday, and closed just above $44.  On Friday,
Nokia held up in the morning, but succumbed to market weakness
and rumors of various crises which plagued the market, however,
it held above the critical support level of $41.63.   Many
analysts have expressed their opinions regarding the issue
of capital spending on telecom, optical Internet and other
technology related spending in this slowing economy, but most
agree that wireless infrastructure is one area in which
corporate spending will continue at a pace of 20-30% annually,
driven by upgrades to existing digital networks.  Carriers
continue to invest in new wireless spectrum, and as one of the
top 5 vendors in this growing market, Nokia has a strong 30%
position.  In addition, Nokia is one of the few technology stocks
which stayed above its 200-dma during December.  A simple way
to play Nokia is to take bullish positions upon the stock's
clearing the converged 200 and 50-dma of $43.53.  After that
level is cleared, Nokia has light resistance at $44, and
stronger resistance at $45.00, and $45.50.  Market conditions
permitting, we should see Nokia clear these levels in the near
future, and begin its next traverse to $50.  Continue to watch
the wireless telecom sector for strength, and keep stops at $40.

***January contracts expire in two weeks***

BUY CALL JAN-42.5*NZY-AV OI=32421 at $2.69 SL=1.50
BUY CALL JAN-45   NZY-AI OI=24731 at $1.69 SL=0.75
BUY CALL FEB-40   NZY-BH OI= 1219 at $5.88 SL=4.00
BUY CALL FEB-45   NZY-BI OI= 2265 at $3.50 SL=1.75


COST - Costco - $41.31 (+1.31 last week)

Costco Wholesale Corporation operates membership warehouses
based on the concept that offering members very low prices on
a limited selection of nationally branded and selected private
label products in a wide range of merchandise categories will
provide high sales volumes and rapid inventory turnover. Costco's
warehouses generally operate on a seven day, 68-hour week, and
are open somewhat longer during the holiday season.

Costco is still in a strong bullish trend, despite the overall
market weakness seen on Friday.  The low point of the week was
the 10-dma of $39.31 on Wednesday morning, a level which Costco
bounced from, even before the Fed's surprise rate cut decision
was announced.  This level is still above the tight trading range
Costco was trapped in for six months, and above the 200-dma of
$37.14, and the 50-dma of $35.68.  On Thursday, Costco almost
cleared strong resistance of $44.69, which has eluded Costco since
February, but it was not to be.  On Thursday, Costco reported
that their sales in December rose 6% from last year's level,
however, this had little short term impact on the stock's price.
On Friday, Costco drifted down with the markets, but bounced off
strong support of $40 in the late afternoon, to close at the 10-
dma of $41.31.  With some help from the markets, and the retail
sector, (RLX.X) Costco should be able to clear strong resistance
at $44.69, which will lead to the next resistance levels at $46
and $49.  Volume is significantly higher on the up days.  A
good entry point could be a move above $44 on strong volume, or,
for more aggressive traders, another bounce off $40.  Continue
to set stops at $34.

***January contracts expire in two weeks***

BUY CALL JAN-35 PRQ-AG OI=6770 at $6.75 SL=4.75
BUY CALL JAN-40*PRQ-AH OI=2705 at $2.63 SL=1.50
BUY CALL FEB-35 PRQ-BG OI= 107 at $7.50 SL=5.25
BUY CALL FEB-40 PRQ-BH OI= 238 at $3.88 SL=2.50


MER - Merrill Lynch & Co., Inc. $71.56 (+3.38 last week)

Merrill Lynch & Co., Inc. has a strong client focus with a goal
to deliver superior returns to their shareholders.  They are
determined to create value for their clients by providing wisdom
and high quality services that meet their needs.  Merrill Lynch
has a track record of delivering strong returns to their
shareholders, and has aligned employee and shareholder interests
through a high level of employee stock ownership.  They are
leveraging the global investments they have made to sustain
profitable growth.

When the Fed lowers interest rates, the first to benefit are the
Financial stocks, which is why shares of MER have recently
rallied, and now appear poised to take out its all-time high.
Simply put, interest rates are the cost of borrowing money.  For
a financial company such as MER, the cost of borrowing money is
the cost of doing business.  Like any other business, when costs
go down, net income goes up.  And when earnings rise, the
Price-Earnings equation dictates that the stock price should move
higher to factor in the increase in profits.  With the Fed fund
futures predicting a series of interest rate cuts going forward,
this should help MER's stock to advance.  Now near its all-time
high of $75, trading volume has increased greatly since the
unexpected 50 basis point cut in interest rates, most of it to
the upside.  While the stock did experience some profit-taking on
Friday, volume to the downside was light.  As well, support at
$70 held firmly.  Look for another bounce off this level as a
potential entry point for traders looking to buy on a dip.
Pullbacks to support from the 5-dma at $70.45, $69, the 10-dma at
$67.97 and the 50-dma at $65.50 are also other targets to shoot
for, but be aware that we have placed a protective stop at the $68
level.  A close below this point would be our signal to close out
this play.  For conservative traders, a break above $73 on
volume, with positive direction confirmed by movement in peers GS
and LEH, could be an opportunity to enter this play.

***January contracts expire in two weeks***

BUY CALL JAN-65 MER-AM OI=11282 at $7.75 SL=5.50
BUY CALL JAN-70*MER-AN OI=46685 at $3.88 SL=2.50
BUY CALL JAN-75 JMR-AO OI=10026 at $1.44 SL=0.75
BUY CALL FEB-70 MER-BN OI= 1038 at $6.25 SL=4.25
BUY CALL FEB-75 JMR-BO OI= 1011 at $3.75 SL=2.00


ONE - Bank One $38.75 (+2.13 last week)

Headquartered in Chicago, Illinois, Bank One is the #4 bank in
the U.S., (after Bank of America, Chase Manhattan, and
Citigroup).  ONE operates some 1800 banking offices in 14
mostly Midwestern and Southwestern states, providing domestic
retail banking, finance and credit card services.  Its other
business activities, which span the U.S. and more than 10
other countries, include commercial, corporate, and
institutional banking, as well as loan and leasing services,
and investment, brokerage, and insurance services.

Proving that the law of gravity has not been repealed, ONE
followed the broader markets lower on Friday, as the stock
pulled back from the upper Bollinger band.  Call it profit
taking, sector weakness or selling the news, we were pretty
impressed by the fact that our play toed the line and held at
$38, above the $36-37 support level.  That's pretty good on a
day when the DJIA gave up a whopping -250 points, and Financial
stocks came under renewed selling pressure.  The dominant
factor in the Financial weakness was speculation that some
major US commercial banks will face losses on bad loans to the
struggling California utilities.  While Bank of America (BAC)
gave up more than 7% by midday (despite claims that the company
knew of no derivative or other losses), ONE managed to keep its
losses in check, only giving up 3% and firming above support as
the afternoon drew to a close.  Earnings are fast approaching,
currently scheduled for January 17th, and anticipation of solid
numbers could give us an upside bias over the next couple weeks.
Wouldn't that be nice for a change?  Look for renewed buying to
come in near current levels as a trigger for new positions.
Hopefully investors will have a more positive attitude about
the 75 basis point drop in interest rates and will come back
from the weekend in a buying mood.  While more conservative
players might want to wait to buy on strength, keep in mind that
the upper Bollinger band will act as resistance.  This makes
good entries tough to manage.  The more prudent course of action
will be to buy the dips, so long as they don't violate our stop,
which still rests at $35.

***January contracts expire in two weeks***

BUY CALL JAN-35   ONE-AG OI=12218 at $4.25 SL=2.50
BUY CALL JAN-37.5*ONE-AU OI= 8641 at $2.13 SL=1.00
BUY CALL JAN-40   ONE-AH OI=15311 at $0.81 SL=0.00  High Risk!!
BUY CALL FEB-37.5 ONE-BU OI= 2944 at $3.13 SL=1.50
BUY CALL FEB-40   ONE-BH OI= 4548 at $1.81 SL=1.00


SBC - SBC Communications $50.00 (+2.25 last week)

With 61 million phone lines in 13 states, SBC is the #2 local
phone outfit in the United States.  It's not just a local
operation either, as the company has stakes in Telecom
operations in 23 other countries around the world.  The
services and products that SBC offers vary by market, and
include local exchange services, wireless communications, long
distance services, Internet services, cable and wireless
television services, security monitoring, telecommunications
equipment, messaging, paging, and directory advertising and

It seemed no sector was safe from the bears on Friday, with
everything from Telecom to Financials to Biotechs feeling the
pain.  SBC went along with the Telecom sector, succumbing to
profit taking to the tune of a 3% loss.  It appears that the
combination of historical resistance between $51-52 and the
30-dma ($51.75) was too much for the bulls in the midst of a
market-wide session of profit taking.  Closing near the low of
the day is certainly not a Buy signal, but it was encouraging
to see the decline halt above the $49 intraday support level
and bounce (however weakly) on the 5-dma ($49.25).  In the event
of renewed selling, the 200-dma (which has crawled up to $47.25)
should provide support and keep our $47 stop from being
violated.  Earnings are still 3 weeks away on January 25th, so
don't look for that event to affect the stock at least for
another week.  Aggressive traders can target shoot any weakness
early next week as long as it is followed by a volume-backed
bounce above the 200-dma.  More conservative traders will want
to wait for SBC to trade through the $52 level before jumping
into new positions.  Don't forget to trade with the sector -
confirm sector strength (AMEX:TTH) and buying pressure in
competitors such as VZ and WCOM before initiating new positions.

***January contracts expire in two weeks***

BUY CALL JAN-45 SBC-AI OI= 4006 at $5.25 SL=3.25
BUY CALL JAN-50 SBC-AJ OI=10624 at $1.69 SL=1.00
BUY CALL FEB-50*SBC-BJ OI=  658 at $3.25 SL=1.75
BUY CALL FEB-55 SBC-BK OI=  856 at $1.31 SL=0.75
BUY CALL APR-50 SBC-DJ OI= 8282 at $4.88 SL=3.00
BUY CALL APR-55 SBC-DK OI=16032 at $2.88 SL=1.50


VZ - Verizon Communications Inc $54.56 (+4.44 last week)

Verizon Communications is the largest wireless-telephone company
in the US; although they have operations worldwide.  They
provide wireline voice and data services, wireless services,
Internet services, and published directory information.  In
addition, the company provides network services such as business
phone lines, data services, telecommunications equipment, and
payphones for the federal government.

Wednesday's record-breaking market environment and a renewed
interest in selective telecoms lifted VZ through the pivotal $50
level.  The high-volume gains extended into Thursday's session
with near-term support firming at $53 and $54.  This strong
technical development, bolstered by the intersected 30 & 50
DMAs, offers encouragement that the momentum can sustain VZ amid
any adversity within the sector or marketplace.  Strong bounces
off the current level offer reasonable entries into this play;
while the more enterprising traders might find a lower entry
near our $51 protective stop or on deep pullbacks, at the
previous $50 resistance level.  However you may choose to
strategize entries and exits, keep an eye on the overall sector
movement to forecast potential breakouts and pitfalls.  Some
stocks you may want to follow include AT&T (T), WorldCom (WCOM),
and Britian's Vodaphone (VOD), which together with VZ has a
venture partnership in Verizon Wireless.  Currently in the news,
Verizon Wireless leads the bids in an auction of wireless
telephone licenses, with the highest bid on nine of the top 15
markets.  Looking down the road a couple of weeks, the company's
upcoming earnings' release may also offer some trading
excitement.  Verizon Communications is confirmed to report on
February 1st, BEFORE the market.  A clean break through the $55
level would offer more conclusive evidence that VZ can run
strong into its earnings.

***January contracts expire in two weeks***

BUY CALL JAN-50 VZ-AJ OI=10248 at $5.13 SL=3.00
BUY CALL JAN-55*VZ-AK OI= 8965 at $1.63 SL=0.75
BUY CALL JAN-60 VZ-AL OI= 7945 at $0.13 SL=0.00
BUY CALL FEB-55 VZ-BK OI=  616 at $3.00 SL=1.50
BUY CALL FEB-60 VZ-BL OI=  576 at $1.31 SL=0.50


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Please read our disclaimer at:

The Option Investor Newsletter                   Sunday 01-07-2001
Sunday                                                      4 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:

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CSC - Computer Sciences Corp. $57.56 -2.56 (1.31 this week)

Computer Sciences Corporation, one of the world's leading
consulting and IT services firms, helps clients in industry and
government achieve strategic and operational results through
the use of technology.  The company's success is based on its
culture of working collaboratively with clients to develop
innovative technological strategies and solutions that address
specific business challenges.

Computer Sciences formed a classic double top pattern at $74
the last week in November, and the first week in December, and
the stock has been in a serious down trend since that time.
Once a high flyer capitalizing on the high corporate IT
spending on Y2K computer upgrades, Computer Sciences is now
suffering with the computer services sector, as analyst after
analyst lowers spending projections on IT services for the
coming year.  Computer Sciences was unable to clear the 200-
dma of $73.82 on December 12, and quickly fell below the 50-dma
of $71.44 the following day.  The drop which ensued was sharp
and severe, and the chart for the last two weeks shows a stock
which would need  a serious boost in order to re establish a
clear upward trend.  The company released additional news
this week about their purchase of Mynd Corporation, as well as
the filing of a shelf registration for a $1 debt offering, which
was not well received.  After receiving the additional blow of
two downgrades in one week, Computer Sciences fell below the
10-dma of $61, and the 5-dma of $60 today. The stock has a
daily pattern of rolling over from resistance at $59.88, and
$58.63, and a failed attempt to clear these levels could be a
good entry point.  Alternatively, traders can take positions
at the current level, which is a 52-week low after checking
for weakness in the computer services sector.  Set stops at $62.

***January contracts expire in two weeks***

BUY PUT JAN-65 CSC-MM OI=4031 at $8.13 SL=6.00
BUY PUT JAN-60 CSC-ML OI=1139 at*$4.38 SL=2.50
BUY PUT FEB-65 CSC-NM OI=   6 at $9.38 SL=6.50
BUY PUT FEB-60 CSC-NL OI= 808 at $6.13 SL=4.00


CB - Chubb Corporation $75.13 (-11.38 last week)

Chubb Corporation, incorporated in June 1967, is a holding
company with subsidiaries principally engaged in the property and
casualty insurance business. The Company presently underwrites
most forms of property and casualty insurance. The Company's
Property and Casualty Insurance Group writes non-participating
policies. Several members of the Property and Casualty Insurance
Group also write participating policies, particularly in the
workers' compensation class of business, under which dividends
are paid to the policyholders.

Like most defensive issues, shares of CB had a stellar year in
2000, going almost straight up with on the back of its 100-dma,
with any tests of that level providing traders with an ideal
entry point.  Connecting the highs and lows since March of last
year reveals a upward-trending regression channel which up until
this week, remained unbroken.  With the break of this long-term
uptrend, shareholders have been selling the stock, eager to take
their profits and rotating their money into less defensive
sectors.  Recent analyst support has been lackluster at best,
with Deutsche Banc Alex Brown initiating coverage of CB at a
Market Perform and Wasserstein Perella starting the stock with a
Hold rating.  Lehman Brothers came in defense of CB, re-iterating
an Outperform rating and a $96 price target but worries about
valuation and questions of whether CB can deliver
better-than-expected results going forward have made investors
nervous.  After heavy selling in the past couple of trading
sessions, CB is now in oversold territory and a bounce is quite
likely.  Look for resistance at the 100-dma at $79.67 and the
5-dma at $80.78 as possible entry points but confirm a rollover
with selling volume and make sure CB closes below out stop price
of $80.  When making a play, look for weakness in rivals CI and
ALL to confirm direction.

***January contracts expire in two weeks***

BUY PUT JAN-80 CB-MP OI= 90 at $5.75 SL=4.75
BUY PUT JAN-75*CB-MO OI=114 at $2.69 SL=1.25


PDLI - Protein Design Labs $59.50 (-27.38 last week)

Protein Design Labs is a leader in the development of humanized
monoclonal antibodies for the prevention and treatment of
disease.  They have licensed rights to their first humanized
antibody product, Zenapax (daclizumab) to Hoffmann-La Roche Inc.
and its affiliates, which markets it in the U.S., Europe and
other countries for the prevention of kidney transplant
rejection. They have seven other humanized antibodies in clinical
development for autoimmune and inflammatory conditions,
transplantation and cancer.

With the Biotech sector being one of the few bright spots of a
much-beleaguered NASDAQ, it seemed only a matter of time before
the bears came to rain on the party.  For the year 2000 the AMEX
Biotech Index gained over 60 percent, faring much better than
most other Tech sectors.  But now, the concerns over valuation,
lack of earnings and the drag of a slowing economy are finally
hitting this space.  In fact, volume to the downside has
accelerated in the sector, as investors were eager to take
profits and move them to other less richly valued and more
interest-rate friendly sectors.  While the stock has spent the
past few months flirting with its 200-dma line, support at the
$70 level appeared to be strong.  That is, until Friday when
continuing negative sentiment in the Biotech sector resulted in
PDLI closing below that level, losing $14.50 or almost 20 percent
on over three and a half times the ADV.  At this point, a bounce
from oversold conditions is quite possible, allowing traders to
sell a failed rally.  Resistance overhead can be found at $60 and
our stop price of $66.  There is also resistance at $70 but a
close above our stop price could suggest a break in PDLI's
downtrend so make sure the stock closes below this level when
making a play. If selling continues to dominate on Monday, taking
PDLI below Friday's low of $56.25, this could allow for an entry
on weakness.  When taking a position, make sure that sector
sentiment is on your side by keeping an eye on Merrill Lynch's
Biotech HOLDR (BBH).

***January contracts expire in two weeks***

BUY PUT JAN-65*PQI-MM OI=64 at $10.63 SL=7.50
BUY PUT JAN-60 PQI-ML OI= 0 at $ 7.13 SL=5.00  Wait for OI!!


RIMM - Research In Motion Ltd. $47.50 (-32.50 last week)

Based in Waterloo, Ontario, Canada, Research In Motion Limited is
a leading designer, manufacturer and marketer of innovative
wireless solutions for the mobile communications market.  Through
development and integration of hardware, software and services,
RIMM provides solutions for seamless access to time-sensitive
information including email, messaging, Internet and
intranet-based applications.  RIMM technology also enables a
broad array of third party developers and manufacturers in North
America and around the world to enhance their products and
services with wireless connectivity.

Shares of RIMM have been getting more portable lately, as selling
on increased volume has trimmed the stock of almost 70 percent of
its value so far in the New Year.  While the handheld computing
device maker ended the year 2000 in positive territory, it
appears that 2001 is proving to be a tougher time.  Connecting
the highs and lows since its October peak reveals a downward
trending regression channel, and a wide one at that.  Most
recently, the downtrend has accelerated, so much so that even
Wednesday's rally on the heels of a Fed rate cut could not allow
RIMM to break above its 5 and 10-dma.  A downgrade by H.C.
Wainwright, from a Buy all the way down to a Sell rating, and an
article in Barron's suggesting the sector as a hunting ground for
short plays certainly added fuel to the fire sale.  On Friday,
the stock fell another $9.88 or 17.17 percent and in doing so,
broke a key support level of $51.50.  Now deeply in oversold
territory, a bounce from current levels is very much possible,
giving us an opportunity to enter this play, and time for the 5
and 10-dma to catch up with RIMM's stock price.  At this point,
resistance can be found overhead at $50, $51.50 and our stop
price at $55. When buying a failed rally, confirm the rollover
with volume and make sure that other stocks in the portable
computing sector, HAND and PALM, are moving in the same
direction.  With RIMM being one of the larger cap stocks on the
Toronto Stock Exchange (TSE), it could also be a good idea to
keep a watch on that Index.

***January contracts expire in two weeks***

BUY PUT JAN-50*RUL-MJ OI=1032 at $9.00 SL=6.25
BUY PUT JAN-45 RUL-MI OI=   0 at $6.50 SL=4.50  Wait for OI!!


CALP - Caliper Technologies $30.56 (-16.44 last week)

CALP's LabChip microchips are like miniature science labs. The
company has developed two types of LabChip systems, Personal
Laboratory Systems and High Throughput Systems. Its personal
laboratory systems use chips with reservoirs for the various
chemical reagents, which the user introduces manually.  CALP's
high throughput systems perform experiments in a serial,
continuous flow fashion at a rate of 5,000 to 10,000 experiments
per channel per day. The high throughput Sipper chip is a unique
system that uses capillaries to draw nanoliters of reagents into
the channels of the chip.  Caliper has development pacts with
Agilent Technologies, which markets LabChip as part of a
bioanalysis system, and with Millennium Pharmaceuticals.

Providing the building picks and shovels to a growth industry
is normally a recipe for success.  The problem that exists with
CALP is that it is providing the tools to the Biotechnology
sector, which began rolling over in early November, and appears
to be in danger of heading further south.  For its own part,
CALP has been in a downtrend since topping near $70 at the end
of October.  The $40 level had been providing support, but that
got destroyed over the past 2 days as the stock has given up 33%
of its value, plunging through the lower Bollinger band by more
than $6 and putting the stock in dire need of a relief bounce.
While it could head further south from here, the odds are
against it, and we would advocate waiting for a bounce before
initiating new positions.  This is where it gets a little
tricky, as we have placed a tight stop at $35 in case the
bargain hunters come knocking next week.  Use any bounce near
our stop as an opportunity to enter the play at a better price
or for those adventurous souls, consider stepping into the play
as CALP falls below the $30 level and takes aim at its 52-week
low of $22.50.  Confirm weakness in the issue by watching the
Biotech Index (BTK.X) and specifically other "picks and shovels"
players, such as AFFX.

***January contracts expire in two weeks***

BUY PUT JAN-40 DQQ-MH OI=122 at $10.25 SL=7.25
BUY PUT JAN-35*DQQ-MG OI=118 at $ 5.88 SL=4.00


IVX - IVAX Corp $31.00 (-7.30 last week)

IVAX is a research and manufacturing company of proprietary and
generic pharmaceuticals in the US and foreign markets.
Currently, its generic products account for almost 60% of sales.
The generic product line includes 57 prescription drugs, which
are manufactured under the Zenith Goldline and Goldline brands,
and about 350 other drugs and vitamins.  Proprietary drugs
include its cancer treatment Paxene, its Easi-Breathe asthma
inhaler product and Elmiron, an innovative drug used for the
treatment of interstitial cystitis.  IVAX also produces
neutraceutical products, veterinary drugs, and diagnostic
reagents and instrumentation.  The company is currently in the
process of merging its diagnostics subsidiary with
b2bstores.com, an office products and services provider.

Lesser-known rivals of the major drug companies are the emerging
generic drug makers such as IVAX Corp (IVX), Mylan Laboratories
(MYL), Israel's Teva Pharmaceutical Industries (TEVA), and Andrx
Group (ADRX).  But unfortunately, their outlook may not be as
rosy as everyone thinks.  It's true that there's potentially
over $8 bln in US sales open to generic applications from drugs
losing patent protection; but there's also the likelihood of
stiff competition from numerous copycat products - the first
company to file with the FDA only gets an 180-day window of
exclusivity!  In other words, the opportunity for an earnings'
windfall is slim to none.  In despite of their questionable
future, the smaller generic firms made significant advances in
2000.  But at present, the bias is to the downside.  IVX saw a
critical breakdown last week.  A distinct sell-off rang in the
New Year and the $35 support level let-go by Wednesday.  Gruntal
& Co also came forward and reiterated a ST and LT Outperform,
but it apparently didn't have any positive effect on trading.  A
sharp reversal to the 5 and 10 DMAs at $34.87 and $36.02,
respectively, followed by heavy selling provide an aggressive
opportunity to take entries into the current downtrend.
Intraday gyrations may also offer a variety of entry points.
Look for rollovers at our protective stop of $35 or buy into
continued weakness below the $32 mark in a declining market.

***January contracts expire in two weeks***

BUY PUT JAN-40 IVX-MH OI=151 at $9.30 SL=6.25
BUY PUT JAN-35 IVX-MG OI=444 at $4.80 SL=3.00
BUY PUT JAN-30*IVX-MF OI=249 at $1.70 SL=0.75



ARTG - Art Technology Group $17.94 (-12.63 last week)

Art Technology Group offers an integrated suite of Internet
customer relationship management and e-commerce software
applications, as well as related application development,
integration and support services.  The Company's solution
enables businesses to understand, manage and build online
customer relationships and to market, sell and support products
and services over the Internet more effectively.  About 40% of
sales are derived from Web site design, consulting, and other
support services.  Global clientele include Forbes and General

Once a sector full of promise, the B2B space has been decimated
by factors both fundamental and technical.  Fundamentally, it's
all about the earnings, or lack thereof.  Even without a slowdown
in capital spending, questions that could not be answered
satisfactorily about the viability of the B2B business model were
enough to result in the mass exodus of shareholders.  While the
idea of selling management software, creating marketplaces and
generating royalties as an intermediary in transactions seemed
lucrative in theory, in reality, fierce competition, the lack of
interest in third-party marketplaces and the realization by
companies that an electronic middleman was superfluous was all
the bears needed to hit the sell button with force.  It's no
surprise that leaders such as ARBA, CMRC and ITWO are well off
their all-time highs, but it's the second-tier issues such as
ARTG which have been more deeply damaged.  But don't
underestimate its low stock price.  Despite its low dollar value,
the stock moves in a range of 4 points or more on any given day,
making this a highly tradable play.  Technically, the chart
reveals a strong downtrend and if the stock price of peers ICGE
and VERT are any indicated, then there is more downside to come.
For aggressive traders, look for ARTG to roll over when
approaching resistance at $19, 20 and our stop price at $21,
confirming with selling volume before making a play.  For a safer
play, wait for a break below support at $17.50 on increased
selling, confirming direction with Merrill Lynch's B2B HOLDR
(BHH), before jumping in.

***January contracts expire in two weeks***

BUY PUT JAN-25   AYQ-ME OI=58 at $8.38 SL=6.00
BUY PUT JAN-22.5*AYQ-MX OI=12 at $6.63 SL=4.50


FRX - Forest Laboratories Inc. $117.25 (-15.63 last week)

Forest Laboratories develops, manufactures and sells both branded
and generic ethical drug products that require a physician's
prescription, as well as non-prescription pharmaceutical products
sold over the counter.  Forest's most important United States
products consist of branded ethical drug specialties marketed
directly, or detailed, to physicians by Forest Pharmaceuticals,
Forest Therapeutics and Forest Specialty Sales forces.  Their
products include Celexa, for the treatment of depression; the
respiratory products Aerobid, Aerochamber and Tessalon; Tiazac,
Forest's once-daily diltiazem for the treatment of hypertension
and angina.

Breaking an uptrend line that has been in place for over a year,
shares of FRX has been selling off on increasing volume.
Fundamental factors that helped the stock to rise in the year
2000 have now reversed, and with formidable resistance at $140,
the technical picture looks weak as well.  An unfriendly Fed
resulting in an environment of rising interest rates last year
along with Tech stocks falling out of favor drove traders to
defensive stocks such as FRX.  Bounces off the 50 and 100-dma
were few and far in-between, with buyers support the stock on the
rare times that it hit those levels.  As mentioned earlier,
resistance at $140 has been formidable, with many unsuccessful
attempts to rally above this point in the past three months.  And
now, with the Fed on the side of traders, money has been rotating
out of the Drug sector and finding its way into Financials,
Cyclicals and some select Tech stocks.  Breaking below the
100-dma (now at $120.25) this past Thursday, support has now
become resistance as FRX failed to climb back above that level on
Friday.  Aggressive traders may look for a failed rally above
100-dma as an ideal entry point, making sure that the stock
closes above our stop price of $120.  For the more risk averse,
look for a plunge below support at $115 on volume before making a
play, confirming direction with Merrill Lynch's Pharmaceutical
HOLDR (PPH).  While the stock will be splitting 2-for-1 this
coming Thursday, January 11th, negative momentum suggests that a
pre-split run-up is unlikely.  Nonetheless, exercise caution when
trading as we approach this date.

***January contracts expire in two weeks***

BUY PUT JAN-120 FRX-MD OI=42 at $7.00 SL=5.00
BUY PUT JAN-115*FRX-MC OI=73 at $4.38 SL=2.75


P - Phillips Petroleum Co. $55.88 (-1.00 last week)

Phillips Petroleum Company is headquartered in Bartlesville,
Okla., where the company was founded in 1917.  Phillips 66 - the
company's trademark red and white shield - is recognized around
the world as the trademark of a major energy company.  An
integrated oil company, the Phillips of today has worldwide
operations.  The company's core activities are:  1. Petroleum
exploration and production on a worldwide scale;  2. Natural gas
gathering, processing and marketing in the United States and
Petroleum refining, marketing transportation, primarily in the
United States;  3. Chemicals and plastics production and
distribution worldwide.

It's been a volatile couple of weeks for shares of Phillips
Petroleum, as a rapidly changing fundamental environment has made
this a volatile but tradable play.  Having already broken its
long-term uptrend line, one that has held since the beginning of
the year 2000, Phillips has found that former level of support
now acting as resistance.  The Fed's surprise intra-meeting 50
basis point interest rate cut caused a traders of defensive
issues, as they became a little braver with their money.
Expectations of future rate cuts could help our play to head
deeper into negative territory.  Add to this a downgrade by
Prudential Securities from a Strong Buy to a Hold rating, and
formidable resistance from the 50-dma, and its no wonder that
shares of P were moving lower.  However, a rise in crude oil
prices courtesy of news that OPEC would be cutting back on oil
production gave the stock a temporary lift.  Despite Friday's
gain of $1 or 1.82 percent, volume was light and the weak finish
suggests a rollover in the near future.  For aggressive traders,
resistance should be formidable at $56, thanks to the 5 and
10-dma, currently converged at that level.  There is additional
resistance from the 50-dma, now sitting at $58.15 but be aware
that we have placed our protective stop at $57.  For conservative
traders, break below the key support level of $54.75, backed by
strong selling volume, would provide for a safer play.  As
Phillips is in a heavily commodity-driven industry, correlate
entries with the AMEX Oil Index (XOI) as well as with rivals TX
and XOM.

***January contracts expire in two weeks***

BUY PUT JAN-60 P-ML OI=209 at $4.75 SL=2.75
BUY PUT JAN-55*P-MK OI=624 at $1.56 SL=0.75


UNH - UnitedHealth Group Inc. $53.94 (-7.44 last week)

UnitedHealthcare designs and operates health benefits systems
with commercial, Medicare and Medicaid products.  Today, the
company serves approximately 8.6 million individual consumers as
members of its health service systems.  On behalf of these
members, the company arranges access to care with more than
340,000 physicians and 3,500 hospitals across 44 U.S. markets and
several international markets.  UnitedHealthcare helps members
achieve improved health and well-being by designing innovative,
people-oriented health benefit plans and services that value
individual choice and control in accessing health care.

A change in the fundamental picture, combined with technical
weakness has led to the recent addition of UNH as a put play.
The Healthcare sector as a whole enjoyed a sort of Renaissance in
the year 2000, helped by turning sentiment in Tech stocks, an
environment of rising interest rates and expectations of strong
growth for the industry, all helping to attract investors to
defensive issues such as UNH.  Over the past year, the stock had
been in a solid uptrend, with brief visits to the 50-dma serving
as a rare but welcome buying opportunity.  But with questions of
valuation now plaguing the Healthcare sector, easing interest
rates and the suggestion by analysts that growth going forward
may not be as brisk as in the past year, investors have been
eager to take their profits, rotating the proceeds into more
attractive areas.  This has resulted dramatic declines this past
week on accelerating volume.  Since breaking its 50-dma on
Wednesday, shares of UNH have fallen sharply lower on heavy
selling volume, definitively breaking its long-term uptrend.  The
stock should encounter resistance overhead at $55, 5-dma at
$56.92, the 50-dma at $58.93 and the 10-dma at $57.41.  These
levels could provide buy points for higher risk players entering
on failed rallies, but note that we are placing a stop at the $60
level.  For a more conservative entry, a break below the 100-dma
($53.02) with conviction would be an ideal point to take a
position.  In both cases, look for weakness in other stocks in
the Healthcare sector such as AET and CI to confirm downward
momentum before making a play.

***January contracts expire in two weeks***

BUY PUT JAN-55*UNH-MK OI= 976 at $3.13 SL=1.50
BUY PUT JAN-50 UNH-MJ OI=2666 at $1.13 SL=0.00


CELG - Celgene Corpation $24.69 (-7.81 last week)

Celgene specializes in immunotherapy medications, focusing on
small-molecule compounds that suppress the body's overproduction
of tumor necrosis factor alpha, which has been linked to several
inflammatory diseases.  Not one to shy away from the
controversial, CELG makes leprosy treatment THALOMID (a form of
thalidomide, which was blamed for thousands of birth defects
when used as a sedative in Europe in the 1950s and 60s).  The
company is exploring the use of THALOMID for brain tumors and
other cancers.  CELG is also developing its own version of
Ritalin, which is used to treat children with Attention
Deficit Disorder.

Although they held up rather well in the midst of the rampant
technology selling over the past 9 months, Biotech stocks are
once again coming under selling pressure.  It looks like the
bears have their eyes set on new 52-week lows for many of the
sector's residents, and CELG may be one of the first to get
there.  After topping out in the vicinity of $70, the stock
rolled over precipitously last month and unceremoniously sliced
through the 200-dma (then at $52.94), which had been acting as
support.  That technical violation just opened the door for
more carnage, and since then, the share price has been cut in
half, tracing an intraday low of $23.63 on Friday.  With
earnings set to be released on January 25th, investors may be
hoping for bit of a respite from the selling.  Their optimism
may be misplaced though; CELG has yet to actually show a profit
and their revenue growth has been slowing over the past several
quarters.  This isn't a combination that puts investors in a
buying mood, at least not in this market environment.  Even the
2 interest rate reductions last week had no effect on the stock
price, as it continued to drift lower, falling through the $30
support level.  Volume has been very heavy, coming in at more
than double the ADV in recent sessions, and a continuation of
this pattern will provide a good confirming signal for the
bears.  Support becomes resistance, and we are looking for a
relief rally to produce a rollover and new entry point near this
level early next week.  Although we are leaving a loose stop at
$35, just in case the bounce takes out the $30 level, the
technicals (Stochastics, MACD, and lower Bollinger band) are
weak enough to allow the stock to drop as low as $17-18 before
the bulls step back into the ring.  Take what the markets give
next week and open new positions accordingly; either on a
rollover near the $30 or $34 resistance levels or on a drop
through the $23 support level.  In either case, confirm solid
selling volume and a Biotech index (BTK.X) that is continuing
to head south.

***January contracts expire in two weeks***

BUY PUT JAN-30 LQH-MF OI=192 at $6.88 SL=5.00
BUY PUT JAN-25*LQH-ME OI= 67 at $3.50 SL=1.75


TQNT - Triquint Semiconductor $42.00 (-1.69)

A leading global supplier of a broad range of high performance
integrated circuits, TQNT offers standard and customer specific
products as well as foundry services.  The company uses gallium
arsenide (GaAs) instead of silicon as the substrate (base) for
its analog, digital, and mixed-signal integrated circuits (ICs).
GaAs ICs operate at greater speeds than silicon chips, or at
the same speeds with less power consumption, making them ideal
for all sorts of gadgets, such as cell phones, pagers,
fiber-optic and satellite telecom equipment, and data
networking devices.  Playing with the big boys, its clientele
includes Nortel, Alcatel, Ericsson, Lucent, and Raytheon.

Valiantly attempting to do its part in resurrecting the
Semiconductor sector (SOX.X), TQNT has spent much of the past
2 months clawing its way higher, as it posts a series of higher
lows.  The picture started looking cloudy in early December,
when the stock began failing to put in corresponding higher
highs.  Significant resistance has begun to form near $49 (right
where we have placed our stop), and this still looks like a
great level for initiating new positions on a failed rally.
The technicals are still looking weak, and a violation of the
ascending trendline near $40 looks like it could occur as early
as Monday or Tuesday.  The CSFB downgrade from Buy to Hold in
early December was the catalyst for shares to pull back from the
$60 level, but last Wednesday's Buy rating from Wit SoundView
had a far less pronounced effect.  The mid-week price jump
provided an attractive entry point as investors rushed to buy
in the wake of Greenspan's interest rate reduction.  The effect
had worn off by the next day though, and even a second rate cut
was insufficient to prop up the stock as it continued to decline
right through the converged 10-dma, 30-dma, and 200-dma (between
$42.81-44.25).  The 50-dma ($41) finally provided some support
on Friday afternoon, so conservative players will look for
selling pressure to overcome the support found both there and at
the ascending trendline at $40 before initiating new positions.
More aggressive players   Trade with the trend and watch for
weakness in the SOX.X and NASDAQ before opening new positions.

***January contracts expire in two weeks***

BUY PUT JAN-45 TNN-MI OI=429 at $6.00 SL=4.00
BUY PUT JAN-40*TNN-MH OI=295 at $3.25 SL=1.75


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On Your Mark, Get Set,...
By Mark Phillips
Contact Support

Well ok, maybe not quite yet.  But I think we are getting close.

The new year is now underway, and one thing is abundantly clear.
Changing the calendar is much easier than changing the direction
of the markets.  Weakness across the board is still the dominant
theme, and even two interest rate reductions in one week
couldn't put the bulls back in charge.  Simple logic makes it
clear that things can't change overnight.  The economy HAS
SLOWED and the speculative dot.com bubble IS history.  The
primary question on investor's minds now is whether the Fed will
be able to keep us out of a recession.  Personally, I think
Uncle Alan, although a bit sluggish to respond this time around,
is still capable of keeping our economy humming along for some
time to come.

Which brings me to the "good news" part of our little chat.
While the economy has slowed, the fact that the Fed is lowering
rates means that the central bank feels that growth has
moderated a bit too much and are taking steps to bring it back
in line.  Investors recognize this and will quickly begin to
factor an economic upturn into their long term outlook towards
the stock market.  The recovery in stock prices will lead the
actual economic recovery, as we all know that most companies
will have an unpleasant quarter or two.  But the second half
of the year should see economic conditions AND earnings on the
upswing again.  By the time the growth starts to show up in
earnings, smart investors will have already figured it out
and reaped some handsome rewards.

Look at the Drug sector.  When was the time to begin investing
here?  Over the past month when one analyst after another was
making glowing recommendations or back in March when the sector
was recovering off of multi-year support levels.  The answer
is obvious, but hindsight does nothing to increase the cash
level in our accounts unless we can apply the lesson going

So, is there a sector that we can look at that appears horribly
oversold, yet still has profits to drive prices higher?  Sure!
There are several, among them PC makers, Semiconductors, Telecom
providers, and Networkers.  How's that for a big list?  The
question isn't IF they will recover and head higher, but WHEN.
As you can tell from our plays this weekend, we think there is
hope in the near future for select Semiconductors (TXN) and PC
makers (DELL), which is borne out by the emerging strength in
both their charts.

Of course we need to pay attention to what is happening in the
broader markets before committing capital to any individual
plays, but things are not all bad there.  The VIX has been on
a rampage over the past 3 months, topping 30 a total of 38
times since early October.  Friday's close at 32.09 makes it
clear that volatility is alive and well, while keeping us in
the zone that is conducive to purchasing LEAPS for the long
haul.  If you have done your homework and picked the plays
you are interested in purchasing, all you have to do is wait
for a dip and bounce in the stock, accompanied by a spike in
the VIX and Voila! a ready made entry point is delivered.  Ok,
well we all know it isn't quite that easy, as the markets have
continued to deteriorate over the past 3 months.  But the
battlefield is significantly different now.

The key differences now are that Greenspan is on our side
again, and Tax Selling is over.  The cash generated by those
recent sales, along with a lot of cash already sitting on the
sidelines is looking for a place to be put to work.  When it
starts to flow into equities, we want to have our game plan,
and maybe a few positions, already in place.  LEAPS are the
perfect combination for the medium-term (6-12 month) investor,
as they give us time to be right without having to pay full
price to own the stock.  The little-known bonus is the
volatility equation.  While a high VIX normally portends a
near-term market bottom, the high volatility frequently
increases short-term option prices to the point of being
ridiculous.  Not so with LEAPS.  The longer the timeframe,
the less susceptible the option is to fluctuations in
volatility -- sure it will have an effect, but not enough
to make purchases in times of high volatility unattractive.

So do some research on your own this week.  Look at some of the
plays on our playlist.  Some of them are compelling values, but
not just because they are so far off their highs.  Future
growth, management, financial stability and business plan are
all part of the puzzle.  Take a look at the growth prospects
for the next several quarters and see if you agree with us that
they deserve to be on the playlist.  Our playlist is a starting
point, not the final shopping list of what to go out and buy.
If you can find 2 or 3 plays that are have an attractive
valuation, and they start showing signs of life on the daily
chart, that sounds to me like the right kind of purchase to
kick off what has the potential to be a very profitable year.

Choose Wisely, Plan Carefully, and then Execute the Plan.

Have a Profitable Week!

Current Plays


EMC    11/07/99  JAN-2002 $ 45  WUE-AI   $ 9.50   $28.50   200.00%
       09/17/00  JAN-2003 $100  VUE-AT   $32.75   $14.50   -55.73%
CSCO   11/14/99  JAN-2002 $ 45  WIV-AI   $11.00   $ 7.13   -35.18%
       11/26/00  JAN-2003 $ 60  VYC-AL   $16.63   $ 7.00   -57.91%
NT     11/28/99  JAN-2002 $37.5 WNT-AU   $15.13   $ 8.50   -43.82%
       09/10/00  JAN-2003 $ 75  ODT-AO   $27.50   $ 4.38   -84.07%
AOL    03/12/00  JAN-2002 $ 65  WAN-AM   $18.63   $ 3.40   -81.75%
       08/13/00  JAN-2003 $ 55  VAN-AK   $17.50   $ 9.20   -47.43%
AXP    03/12/00  JAN-2002 $46.6 WXP-AQ   $ 9.33   $12.63    35.37%
WM     03/19/00  JAN-2002 $ 30  WWI-AF   $ 5.38   $18.63   246.28%
       10/22/00  JAN-2003 $ 45  VWI-AI   $ 7.88   $12.13    53.93%
NOK    05/21/00  JAN-2002 $ 50  IWX-AJ   $17.25   $ 8.25   -52.17%
       07/30/00  JAN-2003 $ 50  VOK-AJ   $17.75   $12.13   -31.66%
C      06/18/00  JAN-2002 $48.8 YSV-AW   $10.31   $12.50    21.24%
       10/01/00  JAN-2003 $ 60  VRN-AL   $12.25   $11.13   - 9.14%
GENZ   07/16/00  JAN-2002 $ 70  YGZ-AN   $17.13   $24.13    40.86%
                 JAN-2003 $ 70  OZG-AN   $23.13   $32.00    38.35%
EXDS   08/06/00  JAN-2002 $ 55  WZZ-AK   $20.75   $ 1.63   -92.14%
                 JAN-2003 $ 60  VTQ-AL   $25.38   $ 3.13   -87.67%
QCOM   09/17/00  JAN-2002 $ 70  WBI-AN   $22.50   $24.63     9.47%
                 JAN-2003 $ 70  VLM-AN   $29.63   $32.13     8.44%
TXN    10/22/00  JAN-2002 $ 50  WTN-AJ   $13.75   $12.50   - 9.09%
                 JAN-2003 $ 50  VXT-AJ   $18.38   $17.13   - 6.80%
ADBE   10/29/00  JAN-2002 $ 80  YEJ-AP   $23.50   $ 9.38   -60.09%
                 JAN-2003 $ 80  VAE-AP   $30.75   $15.75   -48.78%
BGEN   11/05/00  JAN-2002 $ 70  WGN-AN   $17.25   $ 8.88   -48.52%
                 JAN-2003 $ 70  VNG-AN   $25.00   $15.13   -39.48%
MU     11/26/00  JAN-2002 $ 45  WGY-AI   $13.13   $ 9.63   -26.66%
                 JAN-2003 $ 45  VGY-AI   $17.25   $14.50   -15.94%
A      12/03/00  JAN-2002 $ 55  YA -AK   $16.88   $17.63     4.44%
                 JAN-2003 $ 60  OAE-AL   $19.88   $20.50     3.12%
ORCL   12/10/00  JAN-2002 $ 35  WOK-AG   $ 7.75   $ 7.25   - 6.45%
                 JAN-2003 $ 35  VOR-AG   $11.13   $10.88   - 2.25%
QQQ    12/10/00  JAN-2002 $ 70  WNQ-AR   $15.13   $ 8.50   -43.82%
                 JAN-2003 $ 75  VZQ-AW   $19.25   $11.63   -39.58%
WMT    12/24/00  JAN-2002 $ 55  WWT-AK   $ 9.63   $10.13     5.19%
                 JAN-2003 $ 55  VWT-AK   $14.00   $14.75     5.36%

Spotlight Play

TXN - Texas Instruments $47.31

Like a thoroughbred racehorse, TXN is champing at the bit and
is ready to charge up the charts.  The $50 resistance level is
coming under more frequent attacks, and looks like it could
fall for good in the next week or two.  After falling better
than 50% from its summer highs, positive sentiment in the
Wireless equipment industry (TXN is the leading supplier of
DSP chips for wireless handsets) is giving the bulls newfound
hope in their ongoing quest to wrest control from the bears.
The improving fundamental picture, combined with a friendly
interest rate environment should help keep our play on the
road to recovery, and the next serious obstacle will likely be
the $60 resistance level (with the 200-dma sitting at $61.75).
Look for a bounce from support near $46 or even $43 to provide
for new entry points, but WAIT for the bounce.  Given the long
timeframe, and the unsettled nature of the technology markets,
we currently favor buying a bounce rather than a breakout.
This latter approach works best in a consistently trending
market, and that has yet to appear, even in solid stocks like
TXN.  The stock has been leading the broader Semiconductor
sector (SOX.X) out of the doldrums due to its lack of a
connection with the weakness in the PC industry, and any
strength in the SOX should just add to the upward pressure on
TXN, providing a great confirming signal for our play.

BUY LEAP JAN-2002 $50.00 WTN-AJ at $12.50
BUY LEAP JAN-2003 $50.00 VXT-AJ at $17.13

New Plays

DELL - Dell Computer $19.00

Amid the continuous stream of earnings warnings and reports of
a slowing economy, it seemed that shares of the PC makers would
never reach bottom.  The price action over the past few weeks
seems to indicate a bottom is in place near $16.  The stock
hasn't been at these levels for almost 2 years, and it looks
like the bad news is already factored into the stock price.
While there is no guarantee that PC stocks are set to rally,
this seems a good time to start looking for attractive entry
points for the recovery that is bound to follow in the months
ahead.  DELL didn't forget how to make computers, and consumers
are still buying them, both here and abroad.  Patience will be
rewarded on this play, so wait for the entry point to come to
you.  There is enough volatility left in the Technology market
to give us an attractive entry as the stock bounces from the
$16-17 level in the weeks ahead.  If the unforeseen happens
and DELL breaks below the $15 level, stand aside from the play,
as it will be a clear indication that there is more pain in
store for the bulls.  Price gains in other boxmakers like CPQ
and GTW will make for a nice confirmation that the PC sector
is on the mend.

BUY LEAP JAN-2002 $20.00 WDQ-AD at $5.25
BUY LEAP JAN-2003 $25.00 VDL-AE at $5.63


ADBE $51.50 As we feared last week when we put it on probation,
ADBE failed to find support at $55, and aside from a brief
rally associated with the interest rate reduction, spent the
past week trending lower.  Software stocks began the new year
on a negative note, and ADBE was unable to buck the broader
trend, persistently hounded by concerns of slowing growth.
Since adding the play in late October, ADBE has been rather
disappointing, with only one minor rally to play before the
series of technical failures that began with the rollover at
the 50-dma in early December.  Then the 200-dma fell victim
to pre-earnings jitters in early December, and now here we
sit more than $12 below that level.  While shares of the
company could bounce and recover from current levels, we don't
see that as the most likely scenario.  Rather than continue
to chase this play lower, we will drop it and focus on stocks
that have clearly bottomed and appear to be showing signs of

EXDS $17.00 Like so many other unprofitable "new economy"
stocks, EXDS has fallen out of favor in recent months, and
has been tracing new 52-week lows over the past week.  We
expected the $20 level to provide support, but the carnage
last week shows the fallacy in that thinking.  So what did
we learn?  No matter how low a stock goes, it can always go
lower, and ALWAYS use stop losses.  The long gradual decline
since Labor Day would have taken a nasty bite out of an
undisciplined trader's account, but a stop loss order would
have stopped the pain early.  This leaves your mind free to
focus on new, more promising plays, which is precisely what
we are going to do now that we have gotten EXDS off the


The Waiting Game
By Matt Russ

Over the New Year Holiday, no new splits were announced as
investors took time to feel out the market and digest quite an
unexpected Fed rate cut.  While the market anticipated a rate cut
sometime in January, the fact that the Fed cut 50 basis points in
the first week of the New Year rather than 25 further into the
month caught many by surprise.  Nevertheless, it was welcomed and
much needed.  The rally that ensued was of historical proportions
as the NASDAQ had its largest percent gain ever on record breaking
volume.  A myopic view of the entire event gives an sense of
total euphoria.  But the fact remains, we have to play the
waiting game before this rate cut, and others expected to follow,
filter through the economy.  Right now, we are currently beginning
to feel the effects of the Fed's last rate hike, which was 50 basis
points in May.  As the economy braces for this and continued
corporate worries, the rate cuts may bring temporary euphoria but
won't truly bring economic easing until the latter half of 2001.
While split announcements will increase in relation with recovery
of our current economic condition, there are some less followed
stocks outside the tech sector that still are prime candidates.

Current Split Run Plays


Current Split Candidate Plays


Candidates That Are Not Current Plays


10 Most Recent Announcements We Predicted

FRX  - 12/18 (most recent announcement)
BRCD - 11/29
MANU - 11/08
MUSE - 10/25
AMCC - 10/11
DNA  - 10/05
LEH  - 09/20
ORCL - 09/14
SUNW - 08/17
GLW  - 08/16

Major Announcements So Far This Month = 15

SCHL     AREM     GGG      EAT
FRX      DUK      STT

For our complete stock split calendar, click here...

Symbol  Company Name                Splits  Payable    Executable

SANM - Sanmina Corp.                  2:1  01/08/2001  01/09/2001
AREM - AremisSoft                     2:1  01/08/2001  01/09/2001
HWEN - Home Financial Bancorp         2:1  01/10/2001  01/11/2001
FRX  - Forest Labs                    2:1  01/11/2001  01/12/2001
GMCR - Green Mountain Coffee          2:1  01/11/2001  01/12/2001
DFXI - Direct Focus, Inc.             3:2  01/15/2001  01/16/2001
EAT  - Brinker International          3:2  01/16/2001  01/17/2001
SCHL - Scholastic Corp.               2:1  01/16/2001  01/17/2001
IDPH - IDEC Pharmaceuticals           3:1  01/17/2001  01/18/2001
AJG  - Arthur J. Gallagher & Co.      2:1  01/18/2001  01/19/2001
SWWC - Southwest Water                5:4  01/19/2001  01/22/2001
TALX - TALX Corp.                     3:2  01/19/2001  01/22/2001
DUK  - Duke Energy                    2:1  01/26/2001  01/29/2001
GGG  - Graco Inc.                     3:2  02/06/2001  02/07/2001
SEIC - SEI Investments                2:1  02/28/2001  03/01/2001
FSCR - Federal Screw Works            5:4  04/02/2001  04/03/2001
STT  - State Street Corp.             2:1  05/30/2001  05/31/2001

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Please read our disclaimer at:

The Option Investor Newsletter                   Sunday 01-07-2001
Sunday                                                      5 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:


Volatility and Option Pricing: Q&A with the Covered-calls editor
By Mark Wnetrzak

Do market-makers use charting to help determine the price of an
option?  If so, which is more important in determining the value
of an option, volatility or the recent trend of the underlying


First, some information about volatility in stocks and options:

A stock's volatility, usually referred to as historical volatility,
is determined by mathematical formulas that use the issue's recent
price activity (closing or high and low values).  For example, one
of the basic volatility calculations uses past closing prices for
a specific stock to determine the annualized standard deviation of
the instrument.  For example, a historical volatility of 50 means
that the stock has a 68% probability (one sigma) of trading within
50% of its average targeted move within one year.  An option's
volatility usually refers to its implied volatility.  This is an
estimate or assumption produced by an option pricing model based
on factors such as relative strike price, time to expiration,
intrinsic value, risk-free interest rate, and the dividend issued
with ownership of the underlying stock.

Pricing models use a projection of a stock's future volatility
in calculating option prices.  These formulas do not include an
issue's directional trend or price momentum.  Thus, if all other
factors are the same (stock and strike price, time to expiration,
and dividend issued), two different issues that have the same
forecast volatility will have similar option prices.  It doesn't
matter whether one has remained relatively close to a specific
price (a trading range) while the other has moved steadily in one
direction.  That's why it is so important to have a fundamental
understanding of technical analysis and basic market trends when
selecting an issue; because an option trader can greatly improve
his or her success in situations where directional trends are not
incorporated into an option's pricing.


I have shares in a stock (I'd rather not mention the issue) that
has fallen to all-time lows and is nearly worthless.  I did not
sell the stock when I should have (before December 31st) and now
it appears I will have to wait another year to record the loss.
Is there anyway I can declare the stock worthless and take the
loss on last year's taxes?

If you have stock that has become worthless, you can deduct the
full cost basis of that position when you do your taxes.  The
easiest way to close out a position is to sell it, even if you
only get a few dollars in the transaction.  Of course you don't
want to pay more for commissions than you will receive for the
issue, so many brokers have an arrangement that allows the sale
of worthless stock to them for $1 (or less) for the lot.  If
you choose not to sell the worthless shares, you must provide
documentation to the IRS that the stock really had no value at
some point in time, and record the position as "closed" on the
same date.  If you can demonstrate that the shares did indeed
become worthless last year (a letter from your broker or even a
note from the company should be sufficient), it is not necessary
to sell them at a future date.  Another way to unload the stock
is to sell it to one of your friends for a minimal amount, and
then list the closing price and date on your tax form.  The most
important thing to be aware of when employing this type of tax
loss strategy is the legality of the transaction.  At the OIN,
we have a number of excellent resources and one of our newest
contributors is a tax expert.

Jim Crimmins at TradersAccounting.com can help you with all of
your questions about taxation with regard to stock and option
trading.  Contact him at:


Good Luck!

NOTE: Using Margin doubles the listed Monthly Return!

Stock  Price  Last   Call  Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

FIBR   16.06  15.69   JAN  12.50  4.75  *$  1.19  15.2%
MCOM   10.75  10.88   JAN   7.50  3.88  *$  0.63  10.0%
NRGN   35.13  30.25   JAN  30.00  6.75  *$  1.62   8.3%
MCLD   14.69  18.94   JAN  12.50  3.00  *$  0.81   7.5%
CRK    11.44  13.38   JAN  10.00  2.19  *$  0.75   7.0%
GLGC   21.25  17.69   JAN  17.50  5.25  *$  1.50   6.8%
FNSR   27.00  26.25   JAN  22.50  5.75  *$  1.25   6.4%
KLAC   31.81  37.19   JAN  25.00  8.13  *$  1.32   6.1%
EDGW    5.63   6.53   JAN   5.00  1.00  *$  0.37   5.8%
BCGI   28.38  27.94   JAN  22.50  7.25  *$  1.37   5.6%
MATX   17.13  15.19   JAN  15.00  2.69  *$  0.56   5.6%
CHMD   12.13  11.56   JAN  10.00  2.50  *$  0.37   5.6%
PHSY   15.00  15.50   JAN  12.50  2.94  *$  0.44   5.3%
CPRT   18.69  19.50   JAN  17.50  2.19  *$  1.00   5.3%
PHI    17.56  17.25   JAN  15.00  3.25  *$  0.69   5.2%
QTRN   18.38  18.00   JAN  17.50  2.06  *$  1.18   5.2%
HSIC   30.63  30.13   JAN  30.00  2.31  *$  1.68   5.2%
AVID   18.63  18.75   JAN  17.50  2.06  *$  0.93   4.9%
WMS    19.00  18.69   JAN  17.50  2.25  *$  0.75   4.9%
MLHR   26.81  27.75   JAN  25.00  2.88  *$  1.07   4.9%
CVD    11.38  10.56   JAN  10.00  2.00  *$  0.62   4.8%
GETY   32.00  35.72   JAN  25.00  7.75  *$  0.75   4.5%
EXFO   32.00  22.00   JAN  22.50 11.25   $  1.25   4.4%
WMS    19.69  18.69   JAN  17.50  3.00  *$  0.81   4.2%
ARQL   33.75  24.50   JAN  25.00 10.00   $  0.75   2.3%
LEXG   16.63  11.81   JAN  15.00  2.75   $ -2.07   0.0%
GZMO   14.19   9.25   JAN  12.50  2.69   $ -2.25   0.0%

*$ = Stock price is above the sold striking price.


Nobody said it was going to be easy!  Alan's "magic" sure didn't
last too long.  Genzyme Molecular Oncology (GZMO) continues to
trade sideways though a move below the December low would signal
an exit.  Tuesday's bearish reversal on Lexicon (LEXG) hopefully
kept anyone from entering the position - and with the continued
overall weakness, we will show the play closed.  Mcleodusa (MCLD)
endured some radical moves this week and appears to have made a
successful test of the November low.  Arqule (ARQL) has weakened
and a test of the December low now appears likely.  Several of
the above issues are moving towards key support areas and should
be monitored closely.  Depending on your outlook, a timely exit
may be warranted if the market-wide selling pressure continues.

Positions Closed:

Miravant (MRVT), Rf Micro Devices (RFMD).


Sequenced by Return
Stock  Last  Call  Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

ADIC   23.94  JAN  20.00  QXG AD  4.88  403   19.06   14    10.7%
SMTC   23.44  JAN  20.00  QTU AD  4.38  321   19.06   14    10.7%
APWR   38.88  JAN  35.00  PUW AG  5.25  50    33.63   14     8.9%
SUNW   28.00  JAN  22.50  SUQ AX  6.25  20948 21.75   14     7.5%
XOXO   22.00  JAN  17.50  QNF AW  5.00  312   17.00   14     6.4%
PRIA   23.56  JAN  20.00  UXQ AD  4.00  185   19.56   14     4.9%
BBY    39.94  JAN  35.00  BBY AG  5.63  1162  34.31   14     4.4%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MR-Monthly Return.

ADIC - Advanced Digital Info  $23.94  *** Data Storage ***

ADIC is a leading device-independent storage solutions provider to
the open systems marketplace.  The Company offers a broad range of
products designed to enhance organizations' ability to store,
protect, manage and use their rapidly growing network data.  ADIC's
automated storage products are available through a worldwide sales
force and a global network of resellers and OEMs, including Dell,
Fujitsu Siemens and IBM.  The explosion in business data is driving
companies to seek solutions to traditional storage challenges and
ADIC will be filling that need with its new release of its AMASS®
for UNIX storage management software.  The company reported a
strong 4th-quarter in December with 50% growth rates in their core
North American markets.  We favor the recent move up and out of a
seven month Stage I base - which suggests further upside movement.

JAN 20.00 QXG AD LB=4.88 OI=403 CB=19.06 DE=14 MR=10.7%

APWR - AstroPower  $38.88  *** No Shortage of Solar Power! ***

AstroPower is the world's largest independent manufacturer of solar
electric power products, and one of the world's fastest growing
solar electric power companies.  AstroPower develops, manufactures,
markets and sells PV solar cells, modules, panels and systems for
generating solar electric power.  It appears the dip in December
was only an opportunity to obtain some cheap AstroPower stock.
The stock was recently upgraded and has been added to the S&P
SmallCap 600 Index.  Friday, Chase H&Q did reduce their fiscal
2001 estimates on the company, but it was due to AstroPower's
intensified growth initiatives.   The stock rallied strongly off
the December dip and it has now moved above its 150 dma (and the
December high).  A long-term look at a 3-year chart shows that
AstroPower's up-trend is still intact.

JAN 35.00 PUW AG LB=5.25 OI=50 CB=33.63 DE=14 MR=8.9%

BBY - Best Buy  $39.94   *** On the Rebound! ***

Best Buy is the nation's number one volume specialty retailer of
consumer electronics, personal computers, entertainment software
and appliances.  The company currently operates more than 400
retail locations in 41 states and online at www.BestBuy.com.  This
week, Best Buy reported sales of $2.69 billion for December which
represents a 19% increase over last year.  This was good news a
day after the FED had reduced the prime rate by 50 basis points.
CSFB analyst Gary Balter has reinstated coverage of Best Buy with
a "Strong Buy" and a 12-month target price of $60.  A reasonable
entry point on a rebounding stock for those investors that believe
Best Buy has a bullish future.

JAN 35.00 BBY AG LB=5.63 OI=1162 CB=34.31 DE=14 MR=4.4%

PRIA - PRI Automation  $23.56  *** Technicals Only ***

PRI Automation supplies factory automation systems for semiconductor
manufacturers and OEMs whose mission is to improve the productivity
of semiconductor manufacturing.  The company offers a broad range of
integrated solutions consisting of factory automation hardware and
software that optimize the flow of materials and data throughout the
semiconductor fabrication facility.  PRI also provides automation
services including equipment layout and design; simulation; project
management; installation; and, on-site support.  PRI was halved
in September after it warned that it would barely break even
because of manufacturing, capacity and supply chain problems.  The
usual lawsuits have been filed.  We simply favor the improving
technical signals as the stock forges a Stage I base.  Reasonable
short-term speculation with a cost basis near support.

JAN 20.00 UXQ AD LB=4.00 OI=185 CB=19.56 DE=14 MR=4.9%

SMTC - Semtech  $23.44  *** On the Rebound! ***

Semtech is a leading supplier of power management, transient
protection, system management, high-performance and advanced
communications semiconductor products for portable and high-speed
communications applications.  On Thursday, Semtech announced that
it expects to achieve analysts' consensus earnings estimates of
$0.23 per share for the 4th-quarter ending January 28, 2001.  The
company did say their revenue would be sequentially flat this
quarter but their gross margin continues to expand.  Semtech
also announced a $50 million buyback program where common stock
and registered convertible subordinated notes may be purchased.
Semtech has rallied over the last two weeks on increasing volume,
which suggests a change of character is at hand.  Reasonable
short-term speculation for those who like bottom fishing.

JAN 20.00 QTU AD LB=4.38 OI=321 CB=19.06 DE=14 MR=10.7%

SUNW - Sun Microsystems $28.00  *** An Ode to a Fallen General ***

Sun Microsystem is a leading worldwide provider of products,
services and support solutions for building and maintaining network
computing environments.  SUNW markets scalable computer systems,
high-speed microprocessors, and a complete line of high performance
software for operating network computing equipment and storage
products.  The company also provides a full range of services,
including support, education, and professional services. SUNW's
products and services command a significant share of the rapidly
growing network computing market.  We simply wanted to offer a
position on one of the old leaders of the Nasdaq with a reasonable
cost basis.  The technicals suggest the selling pressure is abating
though earnings are due the week of expiration.

JAN 22.50 SUQ AX LB=6.25 OI=20948 CB=21.75 DE=14 MR=7.5%

XOXO - XO Communications $22.00  *** On The Rebound! ***

XO Communications is one of the world's leading providers of
broadband communications services offering local/long distance
voice communication, DSL access, Web hosting and e-commerce
service, Virtual Private Networks, dedicated access, global
transit and application infrastructure services for delivering
applications over the Internet or a VPN.  Friday, XO reported
that it had privately sold $450 million of 5.75% convertible
subordinated notes maturing in 2009 to help finance the expansion
of existing networks and services, develop and acquire additional
networks and services, and fund operating losses and working
capital.  The telecommunication service providers have shown
recent strength as investors look for inexpensive stocks with
long-term growth potential.  XO is on the verge of completing
a "double-bottom" formation and the heavy volume supporting the
current rally suggests further upside potential.  We simply
favor the change of character and increasing strength in the
face of general market weakness.

JAN 17.50 QNF AW LB=5.00 OI=312 CB=17.00 DE=14 MR=6.4%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Return
Stock  Last  Call  Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

ABIZ    5.94  JAN   5.00  QPI AA  1.19  143   4.75   14    11.4%
AEOS   46.44  JAN  45.00  AQU AI  3.50  320  42.94   14    10.4%
DAL    52.75  JAN  52.50  DAL AX  2.00  217  50.75   14     7.5%
AVCI   21.31  JAN  15.00  QYV AC  6.75  36   14.56   14     6.6%
PRGN   20.94  JAN  17.50  GQP AT  3.88  303  17.06   14     5.6%
AL     35.38  JAN  35.00   AL AG  1.25  1086 34.13   14     5.5%

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Success Basics: Portfolio Diversification Revisited...
By Ray Cummins

One of our readers asked why we promote the use of portfolio
diversification as a key trading rule for new investors.

First, it's important to define the term diversification with
regard to stocks and investments.  In this case, diversification
is a risk management technique that combines a variety of trading
positions within a portfolio, thus reducing the impact of any one
investment on its overall performance.  An astute investor knows
that negative news concerning a well-known company in any sector
will tend to affect all of the stocks in that particular group.
That is one reason it is important to balance the holdings in your
portfolio; so that they don't all decrease in value because of a
single event.  Diversification also lets you take advantage of the
variety of financial instruments available in the market, and an
assortment of issues from different categories will ensure that at
least some of your investments are outperforming the major indices.

Blue Chip stocks are historically the best long-term investments.
These companies are established, high quality issues like Dupont
(DD), Boeing (BA), McDonalds (MCD, American Express (AXP), and
International Business Machines (IBM).  They generally pay good
dividends and are considered the bellwethers of the stock market.
Defensive or safety issues are stocks that remain stable even in
declining markets.  This group usually includes utilities, drug
manufacturers, and consumer products or food companies.  These
stocks hold their value in recessions because their products are
always in demand, regardless of the economic climate.  Cyclical
companies are those whose earnings fluctuate with changes in a
particular business or industry cycle.  When the conditions are
favorable, the company's stock and earnings rise.  As the cycle
ends, the company's revenues and stock value falls back to its
previous position.  Growth stocks include any companies that have
a high probability of capital appreciation.  They retain most of
their earnings and usually don't pay dividends.  In most cases,
all of their income is invested in the company for expansion and
acquisition or research.  These stocks are more speculative and
are generally found in the technology segment.  One other type
of investment; Income stocks are very conservative issues that
have yields comparable with corporate bonds.  These companies
can offer competitive returns because their products or services
are superior to others in the industry and they also have the
possibility of price appreciation.

Another popular category of stocks is the Conglomerate.  These
companies have a diverse line of products and services that span
a number of key industries.  For example Minnesota Mining and
Manufacturing (MMM) is often referred to as maker of industrial
adhesive products (3M markets Scotch brand tape) but they also
provide manufacturing services for the transportation, graphics
and safety, health care, consumer, office supply, electronics,
communications and specialty materials industries.  Each specific
segment is affected by a combination of many different elements,
including the overall economy, the health of the industry they
do business in, and the unit's individual performance.  All of
these subsidiaries behave in different ways from one another,
performing uniquely in separate cycles and with varying degrees
of success.  At any given time, one or more of these segments
will outperform the broader market and by owning shares of a
conglomerate, you can benefit from their ability to compensate
for common economic fluctuations.  It's obvious that businesses
in different industries are affected in unique ways by the same
economic variables and this reasoning applies just as well to a
large portfolio of positions.  Fund managers are an excellent
example of this concept; they invest in a variety of issues to
protect their portfolio against unexpected changes in the market.

The amount of risk you are willing to incur has a direct effect
on the diversity in your portfolio.  Because every financial
instrument reacts differently to market conditions and other
business and economic factors, experienced traders attempt to
maintain a balanced group of positions that provide steady income
and a reasonable potential for capital appreciation.  Though you
are less likely to become an overnight millionaire with this low
risk approach, your investment capital will be protected from
unexpected losses, and your portfolio will be able to increase
in value on a consistent basis.

Good Luck!

                      *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


Stock  Price  Last   Put   Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

PHI    17.81  17.25   JAN  15.00  0.50  *$  0.50  15.1%
KLAC   33.69  37.19   JAN  25.00  0.75  *$  0.75  14.5%
PLNR   28.88  24.13   JAN  22.50  0.63  *$  0.63  10.7%
CNF    33.81  34.81   JAN  30.00  0.69  *$  0.69   9.6%
CHTR   22.00  22.13   JAN  20.00  0.81  *$  0.81   9.3%
BSTE   37.50  33.00   JAN  25.00  0.69  *$  0.69   9.2%
STAT   26.44  22.69   JAN  22.50  0.44  *$  0.44   9.0%
NEM    16.25  16.88   JAN  15.00  0.88  *$  0.88   8.9%
ALSI   33.63  29.75   JAN  25.00  0.44  *$  0.44   8.9%
AEIS   24.38  23.50   JAN  20.00  0.69  *$  0.69   8.2%
ADVP   39.50  36.53   JAN  30.00  0.81  *$  0.81   8.1%
HCR    19.69  18.13   JAN  17.50  0.44  *$  0.44   7.8%
MU     35.88  36.50   JAN  25.00  0.69  *$  0.69   7.6%
ADLAC  48.56  48.44   JAN  35.00  0.69  *$  0.69   7.2%
CPRT   20.25  19.50   JAN  17.50  0.38  *$  0.38   7.2%
LFG    38.38  38.56   JAN  35.00  1.00  *$  1.00   6.7%
PPDI   48.19  41.94   JAN  40.00  0.69  *$  0.69   6.4%
PHCC   40.81  32.38   JAN  32.50  0.50   $  0.38   6.4%
SPF    25.44  24.25   JAN  22.50  0.69  *$  0.69   6.3%
TXN    47.63  47.31   JAN  32.50  0.56  *$  0.56   6.0%
BSTE   36.94  33.00   JAN  22.50  0.50  *$  0.50   5.5%
NKE    51.19  54.88   JAN  45.00  0.75  *$  0.75   5.4%
TXCC   47.88  31.50   JAN  25.00  0.75  *$  0.75   5.3%
KLAC   35.94  37.19   JAN  22.50  0.56  *$  0.56   5.2%
SNPS   42.13  48.00   JAN  35.00  0.88  *$  0.88   5.2%
BCHE   28.38  31.75   JAN  25.00  0.50  *$  0.50   5.1%
CCR    41.69  48.31   JAN  35.00  0.75  *$  0.75   5.1%
FNSR   37.50  26.25   JAN  22.50  0.56  *$  0.56   5.0%
ADLAC  40.81  48.44   JAN  30.00  0.50  *$  0.50   5.0%
OXY    22.56  24.06   JAN  20.00  0.56  *$  0.56   4.9%
INSUA  39.88  34.94   JAN  35.00  0.44   $  0.38   4.8%

*$ = Stock price is above the sold striking price.


Keep an eye on Pharmaceutical Products (PPDI) as it has moved
down rather quickly.  Friday's decline in Insituform (INSUA) is
quite bearish - exiting the position may be wise.  Transwitch
(TXCC) is moving towards a test of the November low - a key
moment.  Tuesday's opening on Priority Healthcare (PHCC) either
kept you out of the position or allowed for a lower cost basis.
The era of quick and easy remedies in this market is past, thus
concentrating on money management becomes a high priority.

Positions Closed:

Cor Therapeutics (CORR)


Sequenced by Return
Stock  Last  Put   Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

CLPA    6.25  JAN   5.00  QJC MA  0.25  244    4.75   14    36.2%
CAL    56.50  JAN  50.00  CAL MJ  0.63  290   49.37   14     8.2%
HD     49.75  JAN  45.00   HD MI  0.56  10006 44.44   14     7.7%
AMR    43.75  JAN  40.00  AMR MH  0.50  47    39.50   14     7.6%
C      53.69  JAN  50.00    C MJ  0.56  11897 49.44   14     6.6%
COST   41.31  JAN  37.50  PRQ MU  0.38  135   37.12   14     6.3%
GM     54.00  JAN  50.00   GM MJ  0.50  10602 49.50   14     6.0%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, MR-Monthly Return.

One of our long-time subscribers asked why we don't offer more
blue-chip issues in this section.  With the recent indecision
in the market, it seems like a good time to honor that request.

AMR - American Airlines Holdings  $43.75  *** Hot Sector! ***

AMR Corporation is the holding company of American Airlines.
American is one of the largest scheduled passenger airlines in
the world, providing scheduled jet service to more than 170
destinations throughout North America, the Caribbean, Latin
America, Europe and the Pacific.  American also is one of the
largest scheduled airfreight carriers in the world, providing
a range of freight and mail services throughout its system.
AMR owns three smaller airlines that operate as American Eagle
Airlines, Executive Airlines and Business Express Airlines.
American Airlines reported its system-wide traffic increased
4% in 2000, with international traffic up 6.8% and domestic
traffic up 2.8%.  AMR flew almost 2.3 billion cargo ton-miles,
up 10.1% year over year.  The data suggests that American is
performing well and if you need a blue-chip transport issue
in your portfolio, this is a good candidate.

JAN 40.00 AMR MH LB=0.50 OI=47 CB=39.50 DE=14 MR=7.6%

C - Citibank  $53.69  *** Credit Scare! ***

Citigroup is a diversified holding company whose businesses
provide a broad range of financial services to consumer and
corporate customers in 101 countries and territories.  The
company's activities are conducted through Global Consumer,
Global Corporate and Investment Bank, Investment Management
and Private Banking, and Investment Activities.  Financial
stocks retreated Friday, following two days of advances that
came amid euphoria about the FOMC's recent interest rate cut.
However, rumors about bad loans and major losses by Bank of
America (BAC) pressured the group, even though the company
denied the news of potential losses in derivatives or other
trading activities.  For traders who want to own a top-tier
financial stock, Friday's sell-off may offer a perfect entry

JAN 50.00 C MJ LB=0.56 OI=11897 CB=49.44 DE=14 MR=6.6%

CAL - Continental Airlines  $56.50  *** Buying It Back! ***

Continental Airlines is a United States air carrier engaged in
the business of transporting passengers, cargo and mail.  The
company serves over 200 airports worldwide and has connecting
service through alliances with domestic and foreign carriers.
Continental Airlines expects to close a deal to regain control
of the carrier from rival Northwest Airlines on January 22 and
the company is calling the event "Independence Day," as it is
the first time in two decades that a major stockholder has not
controlled Continental Airlines.  In 1998, Northwest Airlines
(NWAC) bought a controlling stake in Continental and now they
have agreed to sell most of it back to Continental.  Northwest
will remain a minority shareholder, but investors like the idea
that Continental is in charge of its own destiny and the chart
reflects that attitude.

JAN 50.00 CAL MJ LB=0.63 OI=290 CB=49.37 DE=14 MR=8.2%

COST - Costco Wholesale  $41.31  *** Technicals Only! ***

Costco Wholesale operates membership warehouses based on the
concept that offering members very low prices on a limited
selection of nationally branded and selected private label
products in a range of merchandise categories will produce
high sales volumes and rapid inventory turnover.  This rapid
inventory turnover, when combined with the efficient operation
achieved by volume purchasing and effective distribution along
with reduced handling of merchandise in self-service facility,
enables Costco to operate profitably at significantly lower
gross margins than traditional wholesalers, discount retailers
and supermarkets.  Costco's recent technical breakout has been
the subject of discussion on many charting web-sites and this
pullback may offer a great entry opportunity for traders who
are bullish on the issue.  Target a higher premium initially
in the position.

JAN 37.50 PRQ MU LB=0.38 OI=135 CB=37.12 DE=14 MR=6.3%

GM - General Motors  $54.00  *** Entry Point? ***

General Motors has the following businesses: Automotive,
Communications Services and Other Operations, which consists
of the design, manufacturing and marketing of cars, trucks,
locomotives and heavy duty transmissions and related parts and
accessories, as well as the operations of Hughes Electronics
Corporation; and Financing and Insurance Operations, which
consists primarily of General Motors Acceptance Corporation,
which provides a broad range of financial services.  Analysts
say that General Motors is an excellent prognostic tool for
blue-chip stocks and the adage is, "As GM goes, so goes the Dow."
If you think the Fed can get the economy (and the stock market)
moving in the coming months, GM might be a good issue to have
in your portfolio.

JAN 50.00 GM MJ LB=0.50 OI=10602 CB=49.50 DE=14 MR=6.0%

HD - The Home Depot  $49.75  *** Retail Giant! ***

The Home Depot is the world's largest home improvement retailer
and the third largest retailer in the United States.  The company
has over 1100 stores in 47 states, six Canadian provinces, Puerto
Rico, Chile and Argentina.  They sell an assortment of building
materials and home improvement and lawn and garden products.  The
company also offers similar products through subsidiaries such as
Maintenance Warehouse and National Blinds & Wallpaper, and EXPO
Design Center stores.  Additionally, they operate two Villager's
Hardware test stores, which offer products for home enhancement
and small projects.  Portfolio managers are cautiously optimistic
that Home Depot's long-term outlook and growth plans will outweigh
current challenges.  Eric Morrison of the Wilmington Large Cap
Growth Institutional fund is one such manager, having invested 2.5%
of his fund in Home Depot - one of the fund's top-10 stock picks.
The company is expected to deliver 23% to 25% earnings growth in
2001 but the question is, can they do this in a slowing economic

JAN 45.00 HD MI LB=0.56 OI=10006 CB=44.44 DE=14 MR=7.7%


Speculation Play

CLPA - Cell Pathways  $6.25  *** Cheap Speculation! ***

Cell Pathways Holdings is a pharmaceutical company focused on the
research, development and commercialization of products to prevent
cancer and to treat cancer.  Their technology is based upon CLPA's
discovery of a novel mechanism that it believes can be targeted to
induce selective apoptosis, or programmed cell death, in certain
pre-cancerous and cancerous cells without affecting normal cells.
CLPA has created a class of selective apoptotic anti-neoplastic
drugs (SAANDs) and has synthesized over 500 new chemical compounds
in this unique group.  In screening assays, over 200 of these drugs
display significantly greater apoptotic potency than CLPA's lead
drug product, Aptosyn.  CLPA was hammered last September as the FDA
decided it would need further information before approving the
company's NDA on Aptosysn.  Now the issue is recovering from the
selling pressure and recent product developments will likely be
reported in the coming months.  A cost basis near $5 seems like a
reasonable price for this speculative issue.

JAN 5.00 QJC MA LB=0.25 OI=244 CB=4.75 DE=14 MR=36.2%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Return
Stock  Last  Put   Strike Option  Last  Open  Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr  Basis Expiry  Return

SUNW   28.00  JAN  20.00  SUQ MD  0.44  18230 19.56   14    15.8%
PSUN   28.25  JAN  25.00  PVQ ME  0.56  15    24.44   14    14.1%
LIZ    42.31  JAN  40.00  LIZ MH  0.69  2668  39.31   14     9.8%
AEOS   46.44  JAN  40.00  AQU MH  0.50  175   39.50   14     8.6%
DAL    52.75  JAN  50.00  DAL MJ  0.75  1367  49.25   14     8.5%
ASD    52.94  JAN  50.00  ASD MJ  0.50  325   49.50   14     5.8%

Why put all your risk into one stock when you can play the
index instead?

Learn how to invest in the OEX, QQQ, and SPX.  Get intraday
market updates, plays, education and daily commentaries by
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The Sell-off Continues...

Friday, January 5

Stocks retreated today amid renewed concerns over earnings and
the sluggish outlook for the economy.  The Nasdaq finished down
159 points at 2,407.  In addition, rumors of credit problems at
one of the nation's leading banks helped send the Dow average
250 points lower to 10,662.  The S&P 500 index slid 34 points to
1298.  Trading volume on the NYSE reached 1.4 billion shares,
with declines beating advances 1,705 to 1,252.  Activity on the
Nasdaq was heavy at 2.1 billion shares exchanged, with declines
outpacing advances 2,442 to 1,412.  In the bond market, the U.S.
30-year Treasury rose 23/32, pushing its yield down to 5.39%.

Thursday's new plays (positions/opening prices/strategy):

BEA Systems   BEAS   JAN85C/JAN40P    $2.06   credit   strangle
Broadcom      BRCM   JAN160C/JAN55P   $1.75   credit   strangle
Emulex        EMLX   JAN105C/JAN50P   $1.75   credit   strangle

Today's volatile activity did little to help the premiums in our
new positions unless, of course, you were "legging-in" to each
side of the play.  The only position that traded near our target
credit (on a simultaneous order basis) was BEA Systems.  However,
Emulex and Broadcom did offer favorable premiums for traders who
don't mind owning the issues at (currently) discounted prices.

Portfolio Plays:

The stock market took a turn for the worse today, giving back
almost all of last week's gains as earnings warnings continued
to pour in from a number of popular issues.  Analysts did little
to help the situation, downgrading a slew of bellwether stocks
in the midst of the broad market sell-off.  On the Dow, 3M (MMM)
was a big loser, falling over $4 to $114 after Lehman Brothers
(LEH) lowered its 2001 earnings estimates.  Hewlett-Packard (HWP)
was also in a downdraft, falling $4 to $30 after UBS Warburg and
Goldman Sachs cut their 2001 earnings estimates on the company.
The well-known broker also reduced its estimates on International
Business Machines (IBM), while UBS sliced profit expectations on
Dell Computer (DELL).  Financial issues also slumped as traders
learned of the banking industry's exposure to utility companies
in California.  Rumors circulated on the trading floor that Bank
of America (BAC) is facing loan losses from bankrupt utilities
companies.  Bank of America announced last month that it would
not meet fourth-quarter earnings estimates due to $1.2 billion
in bad loans and low fees from trading and investment banking.
Among technology shares, Internet, semiconductor, hardware and
wireless telecom stocks generally moved lower.  In the broader
market, biotechnology and retail stocks slumped while a select
number of healthcare, pharmaceutical and oil service issues
posted gains amid a flight to safety.

There was little positive activity in the Spreads/Combos section
today, and the few plays that benefited from the bearish activity
were already near maximum profit.  The most exciting portfolio
news affected a position in that category; the CV Therapeutics
(CVTX) bear-call spread.  CVTX lost over 30% of its value after
the company announced it would have to test its primary drug in
development, Ranolazine, on many more patients to prove that it
works.  CV officials said they conducted an initial analysis of
one of two main clinical trials, but concluded the trial wasn't
large enough to prove that the drug works.  Earlier trials of the
drug were positive but additional tests could set back the drug
development program by six months or more.  While we don't like
to profit from anyone's loss, it was nice to see some favorable
activity among all the negative news.  One of the few bullish
movers was Central Garden and Pet Supplies (CENT), up $1.06 to
$8.69.  The rally was just in time as we were planning to close
the long-term calendar spread for a small loss.  Now the problem
is whether to remain in the neutral position or simply hold the
MAR-10 calls for further upside potential.  Next week's test of
a recent resistance area near $9.20 should provide some guidance
in the play.

Questions & comments on spreads/combos to Contact Support
                         - NEW PLAYS -

These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
The probability of profit from these positions is also higher
than other plays in the same strategy based on disparities in
option pricing.  Current news and market sentiment will have an
effect on these issues.  Review each play individually and make
your own decision about the future outcome of the position.

BSX - Boston Scientific  $15.56  *** On The Move! ***

Boston Scientific is a worldwide developer, manufacturer and
marketer of minimally invasive medical devices.  The company's
products are used in a broad range of interventional medical
specialties; cardiology, electrophysiology, gastroenterology,
neuro-endovascular therapy, pulmonary medicine, radiology,
urology and vascular surgery.  BSX's products are generally
inserted into the human body through natural openings or small
incisions in the skin and can be guided to most areas of the
anatomy to diagnose and treat a wide range of medical problems.
These products provide effective alternatives to traditional
surgery by reducing procedural trauma, complexity, risk to the
patient, cost, and recovery time.

Boston Scientific has been "on the move" in recent sessions
amid speculation of a potential merger/buyout of the company.
The most prevalent rumors suggest that Medtronic (MDT) is the
primary suitor, but there is no public news to substantiate
that opinion.  Regardless of the reason, BSX has moved out of
a Stage I basing pattern on heavy volume and the potential
for additional upside activity is excellent.  Based on the
increased activity in the stock and underlying options, there
are a number of positions that offer favorable risk/reward
potential.  We prefer a limited risk/high return diagonal

PLAY (speculative - bullish/diagonal spread):

BUY  CALL  FEB-15.00  BSX-BC  OI=3401  A=$2.19
SELL CALL  JAN-17.50  BSX-AW  OI=5452  B=$0.43

AGN - Allergan  $83.19  *** Failed Rally? ***

Allergan is a provider of eye care and specialty pharmaceutical
products throughout the world with products in the eye care
pharmaceutical, ophthalmic surgical device, over-the-counter
contact lens care, movement disorder, and dermatological markets.
Allergan's worldwide-consolidated revenues are generated mostly
by prescription and non-prescription pharmaceutical products in
the areas of ophthalmology and skin care techniques, neurotoxins,
intraocular lenses and other ophthalmic surgical products, and
contact lens care products.

The recent move by the Fed to cut interest rates has bolstered
optimism for the stock market, but investors are torn between
the idea of building a defensive portfolio and speculating on
oversold technology issues.  Analysts say a forward-looking
strategy is to buy into high-tech companies whose prices have
retreated from last year's sky-high levels and have a proven
record of profit growth.  Non-cyclical stocks like drugs, food
and other essential household products (that people purchase
regardless of how the economy is faring) have performed well
over the past few months but their strength is waning.  No one
knows which sectors will move higher in the coming months, but
based on technical indications, a short-term consolidation is
appropriate for stocks in the Drug Manufacturers segment.

Note: Target a higher premium initially in the position, to
allow for a rebound from Friday's big sell-off.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JAN-100  AGN-AT  OI=2292  A=$0.38
SELL CALL  JAN-95   AGN-AS  OI=466   B=$0.81
INITIAL NET CREDIT TARGET=$0.62-$0.75  ROI(max)=14%

This position was discovered with one of our primary scan/sort
techniques; identifying potentially failed rallies on issues
with bullish options activity.  In this case, the premiums for
the (OTM) call options are slightly inflated and the potential
for a successful (technical) recovery is significantly affected
by the resistance at the sold strike price; a perfect condition
for a bearish credit spread.

OCA - Orthodontic Centers of America  $26.68  *** Big Premium! ***

Orthodontic Centers of America provides practice management
services to orthodontic practices in the United States.  The
company develops orthodontic centers and manages the business
operations and marketing aspects of orthodontic practices, which
allows orthodontists who are affiliated with OCA to focus on
delivering patient care.  OCA manages over 500 orthodontic
centers located in the U.S., Puerto Rico, Japan and Mexico.
The company has also developed almost 300 orthodontic centers,
acquired the assets of and formed affiliations with over 300
orthodontic practices, and consolidated a number of orthodontic
centers.  The company is not in the business of orthodontics but
in the business of managing its orthodontic centers, as well as
developing and implementing marketing plans for the orthodontic
centers, utilizing television, radio and print advertising and
internal marketing promotions.

We like this issue for a premium-selling position because it has
a relatively well-defined trading range and no apparent news or
events that will substantially change its character prior to the
January options expiration.  The company's earnings announcement
is not expected until late in the month and our cost basis is
near the most recent trading range at $23-$25.  Our plan is to
sell OTM options for credit and use the earned income to offset
any losses on the downside.  If the price of the stock continues
to move through the support area near $25 in the coming week, we
will close the play at a small loss or sell (short) the stock to
cover our sold options.  Traders with a bullish outlook for the
issue in the long-term could also sell additional calls against
the stock, in the event it is eventually assigned.

PLAY (conservative - neutral/credit strangle):

SELL CALL   OCT-35  OCA-AG  OI=330  B=$0.43
SELL PUT    OCT-25  OCA-ME  OI=20   B=$1.12
INITIAL NET CREDIT TARGET=$1.56-$1.62 ROI(max)=20%
UPSIDE B/E=$36.56 DOWNSIDE B/E=$23.43

                         - STRADDLES -

These positions meet our criteria for a favorable straddle; cheap
option premiums, a history of adequate price movement and future
events or activities that may generate volatility in the issue
or its industry.  This selection process provides the foremost
combination of low risk and potentially high reward.  As with
any recommendations, they should be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.

LYO - Lyondell Chemical  $16.56   *** Probability Play! ***

Lyondell Chemical Company manufactures and markets a variety of
intermediate and performance chemicals, including propylene oxide,
polyether polyols, propylene glycol, propylene glycol ethers,
butanediol, toluene diisocyanate, styrene monomer, and tertiary
butyl alcohol and its derivative, methyl tertiary butyl ether,
which are collectively known as the company's chemicals and
derivatives business.  Lyondell also owns 58% of LYONDELL-CITGO
Refining LP, which produces refined petroleum products, including
gasoline, low sulfur diesel, jet fuel, aromatics and lubricants.

The recent rally in LYO shares received a boost in late December
when Goldman Sachs analyst Avi Nash upgraded the Basic Chemicals
group and more specifically, Lyondell to Market "Outperformer."
Now the stock is enjoying strong upside momentum with little
overhead supply to impede its climb until $18-$20.  LYO options
are at historically low prices and the issue has demonstrated
more than enough movement to make this position profitable in
the required time period.  In addition, the company's earnings
are due in late-January.

PLAY (conservative - neutral/debit strangle):

BUY  CALL  MAR-17.50  LYO-CW  OI=64   A=$0.88
BUY  PUT   MAR-15.00  LYO-OC  OI=193  A=$0.81

MIPS - Mips Technologies  $26.38  *** Earnings Play! ***

MIPS Technologies is a leading designer of high-performance and
low power consumption processors, cores and related intellectual
property for use in a wide variety of increasingly sophisticated
consumer devices and networking equipment.  The company's unique,
industry standard designs are based on its 32 and 64-bit reduced
instruction set computing (RISC) architectures.  MIPS licenses
its designs and related intellectual property to semiconductor
companies and system original equipment manufacturers.  Together
with its licensees, the company offers a broad variety of high
performance processors in standard, custom, semi-custom and
application-specific products.  MIPS has over thirty licensees
and the company's licensees offer over 60 standard processors
based on RISC architecture, which have a cumulative installed
base of about 160 million units.

There has recently been a lot of option activity in stocks that
are about to report earnings and one strategy that can work well
in this scenario is to buy a short-term straddle (both a put and
a call with the same strike price and expiration date).  This
conservative technique can take advantage of a surprise move in
either direction, and can profit when the stock moves ahead of
the company's earnings, in expectation of a particular outcome.
There are pitfalls to this strategy because occasionally there
is more hype than substance in the option premiums preceding an
earnings announcement.  The basic requirements for success are
inexpensive options on an issue that has (proven) historical
volatility.  In addition, the strategy is perfect for the novice
trader providing he or she understands option pricing basics and
follows a few simple guidelines.  For these reasons, straddle
buying continues to be a preferred option trading technique when
positions are established based on sound statistical analysis.

MIPS Technologies will report its 2001 second quarter earnings
and conduct its conference call on Thursday, January 11, 2001.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  JAN-25  MUP-AE  OI=73   A=$2.68
BUY  PUT   JAN-25  MUP-ME  OI=259  A=$1.31


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